Thursday, December 31, 2009

The Brief of Arguments Against Public Ownership

As an extension of my short item on postage stamp pricing I have come upon a fantastic article by Richard Kleibowicz in the History of Political Economy.

The article is an analysis of the arguments that AT&T made in its Brief of Arguments Against Public Ownership (available online in three vols v1 v2 v3 or one volume at the State Library of NSW). This was a three volume, three ring binder "living document" that AT&T prepared to argue the case against Government ownership of the telephone system. The Brief itself was mostly a collection of useful references from other authorities for citing by management or supply to other parties.

It transpires that there were many who argued that both the telegraph and telephone should be government owned and operated in the USA in the late 1800s and early 20th century. The article is primarily about the use of political economy arguments and the process of doing so. For me it has a number of useful purposes.

1. It demonstrates the fact that there was a vibrant debate over the desirability of government ownership in the US, something necessary to understand the variety of structures globally.

2. Second it shows how the arguments mounted by AT&T became core parts of the American conception of political economy. In some ways this explains how vehement the likes of Sol Trujillo and Phil Burgess were in their views about the importance of the strong national telco being not under Government control. Interestingly Australia was used in the Brief a number of times - both by reference to the government owned railways and the telecommunications service. Kleibowicz includes one such example in his text, it is a quote from F.W.Taussig which says, in part;

The continued progress ... calls for keeness, vigor, enthusiasm, single-minded devotio to professional tasks on the part of trained administrators and experts. Only an intelligent and self-restrained democracy, or a very capable autocracy, can enlist such men and get them to do their work in the best spirit. The German Empire and the German States, in their post office, telegraph and telephone, perhaps in their railways, unmistakably i their military organisation, have maintained a high spirit of ambition and emulation. But the Australian colonies seem to have secured simply humdrum management; honest to be sure, ... but devoid of life and vigor.

I suspect Sol and Donald McGauchie thought little had changed!

3. The article notes that mass campaigns had just been introduced from the Atlantic as tools of the Progressives, and that the AT&T campaign largely aligns with the start of formal "public relations". Kleibowicz notes;

The Brief of Arguments against Public Ownership formed the centerpiece of an innovative effort to advance AT&T’s policy goals by shaping popular understanding of political-economic principles. AT&T took rhetorical and communication practices that had been tried piecemeal before and melded them into a comprehensive campaign that embedded the company’s specifi c policy preference in a broadly formulated economic argument. Unlike earlier industry missives created for policy debates, AT&T’s Brief functioned as a tutorial on economic ideas for popular audiences. It framed the debate over the policy choice—government ownership or regulation—as a matter of considerable economic import and only partly as a political decision. The Brief organized much of its evidence according to the economic relations involved, notably the effects of government ownership on consumers and employees. Even citizens were addressed in largely economic terms by emphasizing issues of public management such as government rate-making, accounting, credit, and taxation.

In many ways the Brief looks like a template for a modern day PR Key Message set. It astounds me whenever I find a firm or organisatio that thinks it is engaged in public debate that doesn't have just such a set.

As an aside Kleibowicz notes that the Brief "inexplicably" did not quote from the four-book series by Hugo R. Meyer. The interesting part is that this set of books was the source of the arguments the first Director-General of the Australian PMG used in his arguments for less Government control before the 1910 Royal Commission.

Wednesday, December 30, 2009

Postage Stamp Pricing

Two times in the last few weeks I've had people in conversation refer to the concept of "postage stamp pricing". This is the concept of universal pricing as first applied in the UK with the penny post.

It is usually assumed that this was a reform driven primarily by social goals. However, an excellent little contemporary item by the Frenchman Frederick Bastiat explains the alternative to postage stamp pricing. This is a high transaction cost alternative (read it, it is fun).

While I usually quote this as being an argument that the UK Post Office raised more revenue through the reform, the actual outcome in the argument is still a reduction. However, the social and economic gains are perceived to outstrip them.

The issue usually arises in discussing telephony tariffs, the history of which is poorly understood in Australia. There is one excllent monograph which I have been given permission to post on my website but have not done so yet. The interesting fact s that with the growth of computatio power to make differential pricing easier we actually wound up with greater price averaging. This was due to competitive factors.

The other interesting thing in the Bastiat article is the fact that the postal service was a net source of revenue to Government. Eli Noam in Telecommunications in Europe notes that the revenue from the Royal Post was in most countries one revenue stream that the monarch did not need parliamentary approval to spend, and hence the outcome that in those countries the post office took control of first the telegraph and then the telephone.

Tuesday, December 29, 2009

Ergas and the CPRS

Dear Henry Ergas has gone to print in his column in the Oz today on the topic of the CPRS.

He takes an interesting line that, of course, taxing "bads" is the best way to correct the markets failure to consider social costs (an externality) in making purchasing decisions. His gripe is that the consequence is that you collect a very large amount of tax as a consequence, and that instead of allocating this to everyone (by reducing income tax) Government has a habit of buying off special interest groups.

So, just like the GST an ETS might be a "New Tax" - the question is what you do with the proceeds.

Where Henry becomes fascinating is when he goes off to note that "our political system, under the guise of public beneficence, panders all too readily to these single-issue voters, while shifting costs around, including on to future generations, in ways that are as opaque and inequitable as they are inefficient. Against those pressures, there are pitifully few defences."

While he suggests reasoned public debate as one such way, one gets the feeling that he really wants Plato's enlightened despot in charge. Society run by the perfect economic regulator.

But then think of all his critique's of the ACCC.

Perhaps I misjudge him, maybe his real concern is transparency because he criticises the Government over the number of FOI requests knocked back. But then I remember that as an advocate he was a champion of the cause for confidentiality of submissions to that self-same omnipient economic regulator.

Maybe he just likes to grumble.

Digital Economy what?

I try to track all things related to the Digital Economy. Most recently that means seeing a lot of references to the UK Digital Economy Bill.

Those references mostly relate to the fact that the UK Government is attempting through this to strengthen copyright protection through a variant of the "three strikes" rules. This is creating its own mini outrage in the UK.

The idea that you might put a legislative obligation on an intermediary to help prevent up or down stream crime is not unusual, as the things pawn brokers have to do attests. Nor is theidea of specifically targetting the "conduit" of telecommunications, as the old campaigns mounted by the PMG against SP bookies arrests.

I can see the idea that protecting intellectual propertyy and hence endeavour is significant in the digital economy but it hardly seems to be a core issue. Meanwhile the Bill seems to only cover inconsequential matters. Put it this way, how rapidly the UK advances to being a Digital Economy will not be much influenced by this Bill.

What would a Digital Economy Bill in Australia look like? Firstly it would have to deal with the necessary legislative merger to match our converged regulator model. Secondly it would have to deal with the need for greater speed in adjusting regulatory frameworks. Thirdly it would need to institutionalise the concept of an "independent" regulator.

Oh that reminds me I must blog about Henry....

PR and bananas

I found this post on the best and worst PR projects of 2009.

Two reasons for posting it here. The first is because it contains the now infamous banana smoothies clip from Westpac. The second is the heading "Getting better (at communicating) all the time", which is primarily about the need for continual professional development in PR professionals. But I choose to think of it as recognising the need to be communicating all the time, or, far more significantly, your company and brand are communicating all the time - the PR campaign at the end of it can't undo all that.

I also found the comment "I question whether really profound, organisation-changing work can be done from the consultancy position, as opposed to working in-house in a PR capacity, but there are certainly plenty of exceptions to this position."

These three thoughts provide the foundation for a principal that the corporate affairs/PR job function should not be mostly outsourced and that a PR stance of mostly "no comment" means that you aren't managing your communications at all.

Wednesday, December 23, 2009

And now to consumers

My friend Frank Zumbo has had a crack today about the Federal Government's inaction for consumers in 2009.

In particular he is referring to grocery and petrol prices. I only have three short comments;

1. Frank is right that the generic only store ALDI exerts some strong price competition, but wrong to welcome the consequence of home brand products in the big two. Their home brands further entrench their market power and merely reflect further vertical integration. For all their other foibles brands do carry important consumer information in relation to quality and reliability. I want to choose my supermarket AND have a choice of brands.

2. The fact that Coles and Woolies drop prices geographically in response to competition is unfortunately seen by regulators as a good thing - i.e. competition working. The Birdsville amendment that is no more was one way to address this. The other would be to restore the original s49 of the TPA. This was a prohibition on price discrimination other than on the basis of cost. The arguments for its deletion were based on the claim that where the discrimination is injurious to competition it would fall foul of s46. This has proven not to be the case for two reasons, the first is that s46 doesn't work anyway, the second is that the staff of the regulator interpret the repeal of the old s49 as stating that price discrimination is not anti-competitive.

3. The fact (as I've written about before)that both the petrol and retail markets have been thoroughly screwed by the ACCC's continuing sanctioning of "shopper dockets" despite the fact that they are both anti-competitive (s46 breach) and misleading (s52).

On a completely different tangent I was thinking further about the "consumer and citizen" section at the ACMA. One of the troubling issues in telco is the divided responsibility between the ACCC and the ACMA for aspects of "consumer protection". For example a code on prices terms and conditions is enforceable by the ACMA though the conduct if illegal anyway is the responsibility of the ACCC.

The Government might claim their action has been to introduce the Australian Consumer Law - but even that did not get concluded before parliament rose.

It does not have to be this way. ASIC has responsibility for promoting confident and informed participation by investors and consumers in the financial system. The Bill referred to above maintains this responsibility and makes the same amendments to the ASIC Act as are made to the TPA. The industry body Communications Alliance in its submission on the Bill suggested that the telecommunications industry should get the benefits of the reform (i.e. less duplication) by the removal of the consumer protection powers of the ACMA.

There is an alternative and probably far better outcome which would be the exercise by the ACMA of the full ACCC (or new Consumer Law) powers (i.e. the TPA Part 5 powers). The ASIC powers provide the precedent and indeed the logic, that these are complex technical products for which consumer protection and technical regulation should go together.

Another interesting feature of the ASIC regime is their FIDO website. This puts the consumer interest pages somewhere other than the corporate pages. There was a brief flurry in 2006 where the Communications Law Centre with funding from the ACCC launched FairTel which was to be a consumer education campaign. At about the same time the ACA used FairTel as the name for a hypothetical telco on a model consumer contract. Unfortunately the idea of using "FairTel" as the brand for a telco version of FIDO couldn't happen now as a service provider is using the name.

Stephen Conroy's response deserves wider coverage

Stephen Conroy has responded today to Crikey over their coverage of the webpage blocking policy.

I post the link here because his response deserves further coverage, as it dispels most of the myths being peddled about the policy.

Citizens and consumers

The Australian Communications and Media Authority introduced a new structure in December. Key features of the restructure were the alignment of the structure to the key challenges in the sector including digital broadcasting transition and NBN issues.

The stand-out feature though was the formation of the Content, Consumer and Citizen Division. This is the first sign of a "post neoliberal" view of governance responsibility that issues in regulation extend beyond just the consumer.

I recall engaging with either the old DCITA or the old ACA on one of their proposed "customer service" charters and indicating that the word "customer" was inappropriate for a non-commercial relationship. I proposed instead a view that there are "four Cs'" of relevance - and that these divide across a two-by-two matrix of whether the relationship is commercial or not, and whether the relationship was actual or potential. This gives the following four terms;

Consumer - a person who may potentially enter into a commercial relationship to acquire goods or services.
Customer - a person who is currently entering into or considering a commercial relationship to acquire goods or services.
Citizen - a person who has rights and responsibilities under law.
Client - a person engaging with government or its agent (a regulator) in regard to their rights or responsibilities under law.

In these definitions a "person" could be an individual or one of the variety of "incorporated persons" recognised in law.

These distinctions are not entirely new. A UK site called "How to Complain" provides advice on
* your rights as a consumer, customer, client or patient [and]
* the history of and your current rights as a citizen

There are quite good papers that explain why treating citizens as customers in government interaction can make government agencies "citizen-centric", but I would argue the term "client" is more effective for that. While in general usage the distinction between "customer" and "client" may be about the distinction between goods and services, a more specific distinction is that the term "client" is used for interactions where the provider is offering a "professional service". In this usage "professional" does not mean for money but instead means a person who is both expert and covered by some particular ethical code.

A way of making that distinction is that a customer is expected to be able to know enough about the transacton to protect themselves, whereas a client is completely reliant on the professional expertise of the provider. To that end customer is a better description of all commercial transactions and client the description of a citizen interacting with government.

Finally I stumbled on a very good paper on the need to continue a concept of citizen distinct from that of consumer. It ties neatly together with "market state" theory and what the paper calls "New Public Management" which is a term for the amalgam of the reforms of the 1980s and 190s. This is the shift of government from a provider of services to the provider of a framework within which services are provided. It includes corporatisation, privatisation and the kinds of "outsouced" delivery models such as the Job Network.
(That paper came from what looked like a fascinating conference in 2006)

The late Paul Samuelson

A part of The Economist obit for Paul Samuelson caught my eye.

As for Mr Samuelson’s friend of 50 years, Alan Greenspan, once chairman of the Federal Reserve, “the trouble is that he had been an Ayn Rander”—a devotee of laissez-faire capitalism. “You can take the boy out of the cult but you can’t take the cult out of the boy,”

A nice line about Rand and I like labelling it a cult, which I did not go as far as.

Ultimately Samuelson was a believer in regulation,

Yet Mr Samuelson also understood that beyond the ivory tower the conditions necessary for efficient markets rarely existed; they needed regulating. “To understand economics you need to know not only fundamentals but also its nuances,” Mr Samuelson would explain. “When someone preaches ‘Economics in one lesson’ I advise: Go back for the second lesson.” The latest crisis (for which he felt some responsibility, since he had helped develop financial derivatives that company executives did not understand) proved that “free markets do not stabilise themselves. Zero regulating is vastly suboptimal to rational regulating. Libertarianism is its own worst enemy!”

Ultimately there is an important lesson here. Command and control economies are not alternatives to market economies, because in the end aggregate behaviour comes down to individual choice. As the saying goes, you can lead a horse to water but you can't make it drink. You can't make the actual consumption decision for the individual. On top of that every command and control econmy inspires a thriving "black market." So ultimately markets always decide the final outcome.

But markets aren't perfect. There are lots of reasons why they are not - including assymetric information, herd behaviour (which causes bubbles) and lags. But equally relying upon the doctrine of "market failure" is an inadequate guide to how to regulate. As John Kay noted in Prospect magazine "The market failure doctrine is based on an imperfect understanding of why markets succeed, not just why they fail, and hence provides a misleading guide not only to when government intervention is appropriate, but also to the ways in which market forces can improve the operation of the public sector."

The purpose of regulation is not to cover market failure but to make markets work. Ultimately the protection of physical property and the law of contract is a piece of regulation to make markets work, the distinction between this "public law" and economic regulation (as promoted by say Anthony Ogus) is a false distinction.

Democrats and Republicans

In NSW we have been seeing some activity seeking a "recall" power in the NSW consttution. The campaign initiated by the SMH has gained the support of Opposition Leader Barry O'Farrell.

My letter to the editor (unpublished) said;

The calls (SMH 11 Dec) for a citizen recall mechanism to be added to the NSW constitution is the wrong solution. Recall requires a high volume of petitioners and as a consequence places significant power in the hands of new and old media to create the movement.

Better solutions include shorter fixed terms and direct election of the Premier.

Shorter terms would ideally be the Chartist request of annual election. But certainly the recent move from three to four year terms has shown to be a mistake.

Separating the electoral choice of the Executive and the legislature, as in the United States, resolves this absurd concept of party factions mid-term changing the shape of the executive from that last chosen by the people.

Ultimately though the best and most popular solution is the abolition of State Governments. If Barry O’Farrell is genuine on wanting to give the people of NSW the power to determine how they are governed he should put that option to the people.

It was interesting therefore to note an article in the bumper Xmas issue of The Economist on the problems "direct democracy" is causing in the US. In the article it explains the issues in relation to the formation of the new system of Government for the United States and the distinction of meaning between a "republic" (a representative democracy) and "democratic" wich can have a greater connotation of direct democracy.

During my flirtations with the Australia Party and more latterly the Australian Democrats the one policy area I never was comfortable with was the policy of citizen initiated referenda and other forms of direct democaracy. Similarly I have never been comfortable with calls for proportional representation in lower houses in a genuinely "Westminster" system wherein Governments are actually selected.

In the American political party parlance the Democratic Party was the first to emerge and it was actually a "states rights" party - it grew out of the anti-federalists. In other words it was more into "direct democracy" rather than a strong central government. The Republican Party came into being through the reformation of the Whigs as the primary opponents of the Democratic Party. The defining moment and issue was the Lincoln presidency and whether the Federal Government could outlaw slavery.

From the position of modern politics this distinction seems odd. At this time in the UK the two groupings wrre Tories and Whigs and the Whigs ultimately morphed into the Liberals who then largely fell into irrelevance in the battle between onservatives and Labour. In the US the labour movement attached itself to the Democratic Party while the Republicans became more noted as conservatives. It is a strange fact that it remains the Republicans who blieve in strong central government, though they believe it should be small.

There is a view that greater direct democracy is a necessary consequence of the move to a market state rather than a nation state. I hate to sound like a Phillip Bobbitt fan but it is one of the conclusions he reaches. I think there are other alternatives for how democratic governance changes in a market state.

In the Australia context it looks to me like there are a number of strands to this;
1. A directly elected executive Government.
2. Abolition of State Governments and reformation of the local government layer to be more democratic (probably full-time councillors but still only about 9 per area).
3. Completion of the reform agenda so that all large service delivery organisations are at the very least "corporatised" - that is the political process can define outcomes, policy and funding but the internal administrative features are run by the delivery organisations.
4. The democratisation of the positions on the governing bodies of the delivery organisations. (For example, if we are to have Area hospital boards re-introduced as per Liberal Party policy then have those positions directly elected - or at least some of them).
5. Bi-annual elections of the legislature on more proportional representation grounds - I have long favoured the idea of three member proportional electorates and each members vote in parliament represents the actual final preferential vote they received - hence "one man one vote" no longer requires continual redrawing of the boundaries. Bi-chameral parliaments work so long as there is a clear distinction between the function of the upper and lower house. The upper house should be made up of representatives appointed by the regional governments and have no more than a reviewing and delaying function - they should have no power to block legislation. In cases where issues in the lower house may become unmanageable due to PR then there needs to be a provision for the members who were first elected voting for their whole elecorate to constitute the parliament.
6. The structure needs to create real roles for "career politicians" - it is a pity that the current Australian system uses the unelected invisible staffer roles and then party factions to create preselections.
7. Political parties need to be recognised as a distinct form of organisation that is neither a company nor association. To be registered as a party and involved in political processes must require a great transparency.

On top of all this we need to use the communications technologies to reform politics. To use the Internet to "democratise" us and avoid the problem of the mob requires direct involvement by the State and the law in the conduct of campaigning. This would include;
1. Clean booths on polling day.
2. The AEC creating a suite of programs for the online management of political parties and in particular their bank accounts so that full disclosure is continually available.
3. AEC provided on-line campaig resources. Limitations on campaign expenditure by other than on-line means.

The more I think about it the more I want to start the Australian Republican Party!

Tuesday, December 22, 2009

NBN Co consultation

NBN Co has issued its first consultation paper. This deals with important issues like being a Layer 2 provider (not Layer 3) and discussing a very strategic issue which is the location of POIs.

It is disappointing however because its focus on the Layer 2 elements diverts attention from other issues relating to the operation of an ATA port on the ONT, and the choice between an RF port and IPTV. The latter also opens the question of a Datacasting requirement.

The consultation paper is a good start but it is likely to continue to feed the negative perception that the NBN is just fast internet.

Monday, December 21, 2009

The Digital Economy and Copyright

I'm slowly finding comments from around the traps on the Realising our Broadband Future forum. Some really perceptive comments have been made by Roger Clarke.

Roger was highlighting the "public policy" issues thrown up by the NBN. He welcomes the realisation of the Government's role in building this kind of infrastructure, but worries about "censorship". I won't trawl over that again.

e is quite perceptive on the e-health and e-education challenges. The former needs to be about facilitating connection between separate initiatives - not one new "initiative". The latter risks being stifled by the concerns about the dangers of the online world.

He suggests that the consumer voice was missing, and perhaps it was from everything but the community stream. He is right that there are consumer prtection issues that emerge everywhere, and they are not just privacy or equity.

He steered into copyright saying "There was frequently a very large elephant in the room in the form of copyright legislation that's become completely lop-sided in favour of copyright-owners, and is completely at odds with the modern world that every session was enthusing about. Quite simply, we have to get the responsibility for the Copyright Act transferred to an agency that understands the digital age. But no-one talked about that."

That's a really interesting proposition given that the AS of the DE area has a background in copyright, at least in the creation of "Creative Commons" licences. I think I wrote here sometime about the problem Terry Cutler had trying to get Government to apply a CC licence to a report, and as they couldn't understand it gave Terry the copyright himself.

There is really a two-fold concern. Firstly that there aren't enough options for rights holders to deal with rights - that is what the creative commons is trying to address. But the second is that the legal interpretation of the right has become too restrictive - or alternatively too rigid.

Many of the interesting digital issues will be dealt with in the current iiNet case. Either way we are likely to find the need for some new legislation on copyright.

We might then make the same observation as Tom Watson;

[The record industry exec's] letter seems confused. On the one hand, he trumpets the tremendous success and creativity of the music industry. On the other, he suggests that piracy is destroying the business. I’ve been struck at the sheer magnitude of the recorded music industry lobby around the Digital Economy Bill. I’m going to prod around a little more when Parliament returns in the New Year.

The challenge in sorting through copyright issues is in making sure that the rights of original creators ae prserved, but not the existing business models that trade in those rights. In the regulation of on-line shopping you want to protect the consumer and the producer, but not the existing briocks-and-mortar retailers.

It creates some interesting challenges because, as we know, it is the middle me who have the most to lose.

Wow - the NSW Liberal right really is split

NSW Liberal Alex Hawke has told ZDNet that he and other thirty something Liberals are opposed to Conroy's plans for webpage blocking.

He is quoted as saying "If the stated aim is to reduce the availability of child pornography, which is an objective everyone agrees with, the solution is to increase funding to target crime."

His (right) colleague Jamie Briggs is quoted as saying "I'm inherently against this concept, it's a very bad way to do governance. When you examine takeup rates of the voluntary filter the Howard Government put in place, you see that most people are perfectly capable of using the internet to their own satisfaction within the existing law and to supervise their children in the same way."

I guess they've both missed the fact the webpage blocking proposal applies to only Refused Classification material. Presumably Briggs and Hawke believe the same rules they've just espoused should apply to other media. We should let refused classification books and videos into the country and just prosecute people for anything criminal and trust that people are perfectly capable of using books, magazines and DVD players "to their own satisfaction within the existing law".

Actually they are just double standard hypocrites. Hawke goes on to say "I'm a Christian and I have spoken to the Christian lobby and told them that this policy will not be effective. It could even potentially lead to some of their views being added to a government filter. I don't think they're open to the danger of this policy mechanism. It will go beyond [child pornography] and that's where it could run into trouble. I'm going to be arguing strongly inside the liberal party that we should oppose this policy."

We await anxiously for Hawke to explain to us why he is going to seek the removal of the Refused Classification standard for books and DVDs because "they could lead to some of their views" being listed as refused clssification material.

Clearly one of those Liberals he will need to convince is former mentor David Clarke with whom he is reportedly at loggerheads. A long way since the days Clarke went in to defend Hawke over the Brogden demise.

Who'd have thunk that Alex Hawke would align himself with the Libertarians/

Will LTE really be an evolution?

A thought struck me on the weekend about the future of wireless networks.

The thought was triggered by a discussion about the release of the Kindle in Australia (and other non US jurisdictions). The Kindle model is an interesting one in which the communications element is built into the device and the subscription and data charges are all paid by the content deliverer (Amazon). In the US they distribut the content over the Sprint network.

To go to the rest of the world they have not entered into separate arrangements with other mobile operators, just relied upon global roaming arrangements for 3G data. This is the explanation for the slightly higher charge for content delivered outside the US.

This started a conversation about the high data roaming rates which are even worse than the high voice roaming rates on mobiles. Part of the justification for these high rates is the strange paths that roaming traffic may need to pursue - especially in the case of voice on the inbound component.

As far as I understand it the signalling layer of mobile networks still sits within the mobile network, so the intelligence to work out where to route the call/data to reach a handset resides in the home network. There is no technical reason why this signalling layer couldn't be exposed to the community of inter-connected operators.

So to use the simple voice call case even domestically, if a customer on the Telstra fixed network is calling a mobile on the Optus mobile network the call is taken by Telstra to the nearest mainland state capital to the calling party and handed over to Optus. The Optus network then determines where on its network (or in the world) the handsert currently is and routes the call. So if the calling party is in Perth and the handset is in Sydney then the mobile operator pays for the Perth to Sydney transport, not the fixed operator. This is the reverse of what occurs in fixed-to-fixed and in part feeds into the higher F2M prices.

Internet routing is different again. As this is a packet network no "connection" is established and each packet can take a different route. The interconnectio is in principle what is known as "hot potato" routing and each network hands packets over to the other network at the first opportunity. However, the question in relation to data on a 3G network is where is the "internet boundary" of the network determined. It is entirely possible that the process is that your data roaming in is all handed back to your home network operator before popping out into the internet.

If someone knows the 3GPP standards (Ian?) and can explain that here that would be good.

Of course, the inefficient routing structure isn't the only reason for the high charges. There are two other factors at least. The first is that high roaming charges are seen to be a very efficient piece of price discrimination - the person who travels is the person who will value the utility of their mobile more and be prepared to pay more overall. The second is just marketing department's preying on customer confusion - the customer when making an initial purchase decision will be driven by the ongoing charges of domestic use and the prices for international use not directly considered, even if over the lifetime of the contract the international roaming charges could exceed the value of the rest.

LTE - which stands for Long Term Evolution - is the standards process being pursuded by the GSM-3GPP tradition. Just as the GSM to UMTS migration jetissoned the TDMA air interface for CDMA, but retained the GSM network control standards, the UMTS to LTE migration jettisons the CDMA air interface for the OFDM interface (as used by WiMAX), but retains the same network control standards.

It is the latter element that makes LTE an attractive migration for 3G operators. The question is will LTE also evolve the network operation standards to make international roaming more efficient?

Friday, December 18, 2009

It's not me - it's you

That heading summarises my entire relationship with the ACCC. Much as I would like to love the ACCC as a regulator as much as my (non-Telstra) industry colleagues do I just can't manage it. But I don' think I'm the one at fault here.

The latest in the ongoing saga of ACCC pricing decisions has been to issue a new discussion paper on access pricing principles. A key element of he paper is a consideration of whether telecommunications access pricing should move from a TSLRIC+ approach to a Regulated Asset Base (RAB) approach.

This depiction of the distinction is quite artificial, as both seek to set a price that is "cost-based" that is recovers only the "cost" of supplying the srvice. The real difference between the two is not about determining the price but about choosing the costs on which to determn price from. TSLRIC+ is usually implemented based on a "forward looking efficient cost" basis while a RAB is based on actual historic costs.

In the particular case of the ACCC imlementation they have chosen to re-estimate the forward looking cos at each regulatory decision point, but there is techncally no absolute requirement to do so in using the approach. The apparent attractiveness of using an RAB is the ability to move on from repeated estimations.

I will need to write a complete submission but it will be necessary to remind the ACCC why an RAB was rejected for telco originally. The first and simplest was the fact there was not a reliable historic cost base to use as a starting point.

But the second issue was that there was great concern that a model based on historic cost would reward the incumbent for inefficiency. Indeed there is a name for this the Averch-Johnson effect. Anyone who wants to see it in peration should look at the draft IPART decision on electricity prices.

In short if you want telco prices to go up by 60% over 4 years - just move to RBA.

My top 15

I commented on Grahame Lynch's top 15 telco people for 2009.

I thought I'd hav my own go and try to acknowledge some of the people who've done the real work. My list is only numbered to thirteen because some people share.

1. Kate Cornick, former advisor to Senator Conroy
Kate came to Minister Conroy’s office in opposition as a political neophyte with a passion for fibre. In Government she helped steer the process through the NBN 1.0 ender and land on the final Fibre to the Home strategy – her technical preference all along. Kate, like most of Conroy’s office, is a person with real interest in the policy area and has never been the classic political staffer using time in an office to start a lobbying or political career. When Australians in the future look back with awe at the prescient decision to commit to a national FTTH network in 2009 let’s hope that Kate’s contribution is remembered!

2. Gary McLaren, now CTO of NBN Co
As the import of the Government decision to build an FTP network hit home, Gary was one of a small number who started to ask practical questions about how the active and passive elements of this network would run. Gary took his concerns to Anne Hurley at Communications Alliance who, also to her credit, picked up those concerns and started a discussion through Communications Alliance. It was Gary’s initial concern, consultations around industry and project lead that means we are as well advanced as we are n the industry conversation about the NBN.

3. David Forman, CEO Competitive Carriers Coalition
The idea that Australia needed to look beyond DSL for the future of broadband was first promoted by David and the CCC t a forum in Canberra in 2004 (AAPT also contributed). That forum identified both the need for a fibre solution, and the logic of using the building of a new access network to reform industry structure. Both Mark Tapley and Richard Windeyer were in the audience that day. This was the genesis of the ALPs NBN policy, and Telsra’s FTTN proposals of 2005 were in part their response to that very threat. 2009 saw both the realisation of an all fibre future and the recognition that structural reform at the same time is critical.

4. Catherine Livingstone, Chair Telstra
While all the kudos goes to David Thodey for trying to get Telstra into a new space, the old saying is “the fish rots from the head”. The Telstra Board chose the last management tam and got it wrong. The Board has figured out the need to change, but still has a massive job ahead of it in educating shareholders on what the alternative futures for the company are and why the strategies they will pursue to work with the NBN Co and Government are the path to the best future. Catherine’s nomination is merely for being prepared to take on this challenge.

5. Teresa Corbin, Deputy CEO ACCAN
While Allan Asher has been getting all the headlines as the new CEO of ACCAN, Teresa Corbin s the person consumers need to thank for having the vision of a single overarching consumer representative body and for driving it through the establishment phase. Without Teresa there would be no ACCAN for Allan to be CEO of.

6. Michael Malone, CEO iiNet
Having had my own occasion of being the telco singled out for test case prosecution (unfair contracts in Victoria) the whole of industry should feel sympathy for Michael, and in some ways a debt of gratitude that he is unwittingly bearing this load. The questions involved in the AFACT copyright case are non-trivial and it is extremely hard to identify “right” behaviour for an ISP. Whatever the final judgement, which will likely be appealed, we will at least al have greater clarity of the interpretation of existing law.

7. Louise Sexton, Chair, AMTA
AMTA as an organisation deserves acknowledgement because it continues to exemplify an industry association that brings together competing interests and generate a consistent position promoting and advancing the industry. There are many people involved from the CEO and his team, and an extensive network of very active committees. The outcomes can only be achieved by a functioning governance structure. Louise, and Holly Kramer before her, demonstrate there is no need for “independent” chairs to achieve harmonious and effective association Boards.

8. Senators Barnaby Joyce and Fiona Nash
While the rest of the coalition sought to play politics with telecommunications policy, and the shadow minister in particular played the role of defender of Telstra, theses two Nationals Senators at least addressed issues of communications policy with the question of “what will deliver the best outcome for regional Australians?” foremost in their consideration. They were not asked in the end to vote on the separation bill, and the highly charged atmosphere of coalition politics will make it hard for them to ever break from party room decisions. But regional Australians can rest assured that these two Senators continue to pose the right questions on a daily basis.

9. David Quilty, GMD PP&C Telstra
When acknowledging people for their contribution in getting us an FTTH future, we need to acknowledge someone from Telsta for their decision not to submit a bid in December 2008. Leading up to the decision David was the public face of the strategy that Telstra would not bid unless they got assurances on separation. As it transpired it was the technicality that the 16 or whatever page letter didn’t include an SME plan that saw them excluded, but that was left out because the full bid wasn’t made. Had Telstra made an effective bid for an FTTN network the Government may have had no alternative but to accept it. And the separation that Telstra sought to avoid by not bidding will happen anyway. I’m sure the decision was made collectively by many people at Telstra, but David was the public face and so gets the nomination.

10. Huawei
There is no individual to single out from this increasingly impressive vendor. They have gone from being the butt of industry (and my jokes) about being cheap copies to a serious player with impressive R&D. They also seem to be winning the battle to be treated as just another global firm rather than have to deal with the suspicion that they are merely a Government agent.

11. Stefan Keller-Tuborg and Colin Goodwin (from Alcatel Lucent and Ericsson respectively) and the FTTH Council Asia Pacific
While the rest of us have been talking DSL and FTTN over recent years these are the true believers who have maintained a conversation on “true” broadband. Their time has come.

12. Grahame Lynch
The telco industry is getting to be well served by its online and newsletter sector while print media coverage declines. Grahame deserves his particular nomination for not just reporting our media releases but also providing some provocative and/or wacky contributions from the likes of Henry Ergas and Richard Chirgwin as well as his own columns. He is also gracious in the space he allows for further discussion and defence, even to those who start their contribution in terms like “You idiot how could you ….”

13. Customer Service Agents
As the telco industry continues to find new and extraordinary ways to confuse and disappoint its customers, the focus is often on that portion of customers who need to take their issue further. That ignores the much bigger number of cases where a customer service agent sorts out the customer’s problem. And those problems are many, including billing systems that sent a disconnection notice but not a bill, the appearance of premium rate charges inexplicably on a bill, incomprehensible pricing plans and services that simply stop working. The industry’s marketing and IT departments don’t appreciate just how often these forgotten front line staff fix their stuff ups.

Do any readers have other nominations?

Ahh nohing quite like ignorance

I think Verity Pravda has done a great job of outlining how well Stephen Conroy has responded to public discussion in crafting his revised "webpage blocking" policy.

This doesn't stop people such as Nina Funnell deciding to still attack the decision because somehow or other the list will be secret or will include stuff not really intended to be not classifiable. Anyone who shares Nina's concerns should actively contribute to the consideration of "Measures to increase accountability and transparency for Refused Classification". There is a discussion paper and comments are sought by 12 February 2010.

Meanwhile I love this sarcastic/satirical proposed Bill of Internet Rights. Highlights are;

The right to incite, inflame and insult others without fear of repercussion or social responsibility

The right to stick captions on cats

The right to say to someone “your an idiot”, and fail to recognise the irony

The right to argue without clarity, knowledge, reason or respect, including the abstract construction of straw man arguments and ad hominem attacks

The right to call any argument you don’t fully understand an abstract construction of straw man argument or ad hominem attack, whatever that means

The right to take everything at face value, read only headlines, and call it “truth”

Fibre and Structural Separation

Industry newsletter Communications Day has published a tongue in cheek list of the Top 15 telco people in 2009.

In listing Paul O'Sullivan from Optus at number 2 he noted;

One observer describes Optus lobbying that led to the NBN and separation reforms as the most perfectly executed campaign he has seen.

Now this is a tongue in cheek item so one can't tell if this is sarcasm or not. But I thought that I should put on the record that the strategy as currently pursued by the ALP was laid out for it by the CCC and AAPT.

AAP joined with the CCC in a seminar in Canberra in 2004 in which we talked about Australia's need for broadband, and that need was fibre. This pre-dates Telstra's FTTN strategy which was, in part, an effort to forestall an all fibre build.

At that seminar we identified that the effective way to introduce structural reform to the industry was through prospective separation at the same time as buildng a new access network. In the audience were Mark Tapley, then in Conroy's office in opposition and now his Chief of Staff, and Richard Windeyer, then in Senator Coonan's office I think but now a FAS at DBCDE.

The policy the ALP adopted in 2007 Telstra thought was support for their NBN plan, but it wasn't - it always included the structural element. The singal biggest error in Telstra was thinkng they could stare down the Government in late 2008 over their demand that sparation be ruled out for Telstra o bid.

All Optus has done is moaned about separation from the sidelines, screwed up the G9/Terria process (e.g. FANOC not being formed by the time the SAU was lodged, nevr actually getting a Terria bid in) and continued to run idiotic statements about the Telstra network as having been funded by taxpayers.

I'm going to submit to the editor my own top X - if it doesn't get a run I'll post it here.

Tuesday, December 15, 2009

Paradigms, bounded rationality and epistemological anarchy

The title of this blog comes from the view ascribed to Paul K Feyerabend that in science really "anything goes". It also owes a credit to David Stove who wrote a book of that title that largely attacked the suite of philosophy of science positions from Popper through Kuhn to Feyerabend that positted that scientific theories are never more than hypotheses to be "falsified".

Where Kuhn deviated from Popper was by noting that even when scientists had conducted experiments that "falsify" theories, they still cling to them. They only shift, almost as one, when finally the weight of evidence and an alternative theory are present. Kuhn also notes that the "research program" of normal science isn't about devising new "tests" of current theory but is mostly about validating theory by creating new uses. In particular the training of new scientists is in using the tools of the theory - everything is conducted within the "paradigm". In this he was effectively replaying an earlier line from Galbraith in The Affluent Society of "perceived wisdom".

Kuhn's analysis was from stuying the history of physical sciences - in particular astronomy. Feyerabend reviewed this and included other sciences (mostly in Against Method but also in Science in a Free Society). He concluded that there was nothing like the steady progression through revolutionary cycles that Kuhn observed. Instead he argued that scientists were ultimately pragmatists - they use theories because they work, not because they ascribe any particular truth value to them.

This attitude that Feyerabend claims to observe he labelled "epistemological anarchy", the "truths" of science that are "known" are neither - they are merely tools. They are no more knowledge than a hammer or an axe is knowledge.

The fact is that both Kuhn and Feyerabend claimed to be propounding positive theories, describing how science IS DONE. Many have picked their theories up as normative theories, telling us how science should be done. This has a consequence in Stove's real target, which is the idea of relativistic truth, and that theories maty be acceptable because they are the theories of a culture.

Hence indigenous legends are to be accorded the same status as theories as General Relativity.

This is an error. In fact Feyerabend was really much closer to the inductivists Stove admired. Theories are used because they work. The only difference is that he stops short of ever being prepared to allow a theory to progress beyond belief to knowledge.

In the real world we all need to buld our "web of belief" (to use Quine's phrase) and ultimately to progress within it day by day. We ultimately all rely on that belief system for making our daily inferences. That is what we mean in economic theorising when we talk about "bounded rationality" - it is not just the accepted facts, but the theories that we accept that shape our thinking.

But if EVERYONE does that ALL the time nothing new will ever occur. The world needs bombastic iconoclasts who will challenge the standard view on a regular basis. That is what I try to de here at "Anything Goes".

I trust my loyal readers continue to enjoy it. It seems to be coming at some personal cost. The world is far more enamoured with the safe and reliable, with living by the myths of perceived wisdom, of failing to find thesis and antithesis to generate synthesis.

The taxpayer and the network

One of the items I wrote a Havyattogram about was a recent speech which gave as a justification for structural separation the worn out idea that "taxpayers funded the network." I resorted to the H-o-g while Kevin Morgan pointed out in Communications Day that it wasn't taxpayers who paid.

So I made my own contribution, because I agreed with Kevin about who paid and included a piece he left out. But also because who paid isn't really the argument that should be mounted about separation.

I’m pleased that Kevin Morgan has laid out the history of the financing of the telecommunications network so clearly. To summarise the APO was entirely self-funding other than loans from the Commonwealth from 1959. On vesting into Australia Post and Telecom Australia, the entire outstanding debt was transferred to the Australian Telecommunications Commission along with the telecommunications assets – Australia Post started with no debt.

Until corporatisation in 1989 Telecom paid off parts of the principal as well as paid interest due. With corporatisation the outstanding $3B of debt was converted into the Commonwealth’s equity in the Australian Telecommunications Corporation. In 1991 AOTC, subsequently Telstra, was created from the merger of Telecom and OTC. Both Telecom and Telstra paid commercial dividends to the Commonwealth.

The only part that Kevin left out was that immediately before privatization Telstra paid a “special dividend” to the Commonwealth of $3B. That is the Commonwealth recouped its equity investment. So that means the Commonwealth raised something like $80B in the three tranches for an asset the carrying value of which was precisely zero. (After I put this history on nowwearetalking Telstra put the full version there – but it has now disappeared).

So those who moan that the copper network was “funded by the taxpayer” are wrong, though John Lindsay is only slightly less wrong because he at least recognizes that it has really been customers who paid for it. But be that as it may, Kevin is correct to note that the Telstra shareholders paid for that asset with real cash, real cash that has since made its way to taxpayers.

Where I will diverge from Kevin is the idea that just because the thesis of who funded the network is wrong, that therefore there is no basis for separation.

Corporations can do bad things. No one, especially from the union movement, would suggest that existing shareholders in James Hardie have no responsibility for the compensation claims suffering from the effects of asbestos. Most in the community would not these days object to the impact on shareholder value that limiting the advertising of cigarettes resulted in.

In both the US and UK legislation exists (the Sherman Act and the Enterprises Act) under which corporations can be required to divest assets if they monopolize an industry. The first of these was what was used to break up AT&T in 1984 (and the threat of which resulted in the break-up of Boeing Airways into three companies, Boeing, United Airlines and Pratt and Whitney). They don’t have to have engaged in anything other than to have achieved that position, how they got to that point is irrelevant.

The current Government is proposing two routes. The first is that Telstra can choose not to structurally separate but then face limitations on what further assets it can acquire and to face operational separation. The second is that Telstra can agree to structurally separate, something that it can choose to do prospectively as the NBN is built.

Is this something shareholders should be surprised by? Not really. The only two former Government owned telcos that were privatized before Telstra, BT and Telecom NZ, have already been down the operational separation path. BT did so as they were threatened by Ofcom with action under the Enterprises Act that might have seen forced structural separation. Every Senate committee hearing about the stages of privatization saw witnesses arguing the merits of structural reform.

Kevin is right, shareholders own Telstra and the myth of the taxpayer funding the network should be dispelled. But just because shareholders own it does not mea it is beyond regulation, and nothing that is occurring is a risk that should not have been considered by shareholders. The constitution and protection of property rights requires compensation for “acquisition of property”, it is not the obligation of Governments to protect shareholder value.

The editor of Communications Day, arahame Lynch, helpfully corrected my error in relation to the sequence of global privatisations. He advised me before publication but I suggested he run it as is and correct me - as I said I'm not aggressively hiolding myself out to be right and everyone else wrong, I'm just trying to get people to discuss things from wider perspectives.

Grahame wrote;

Re the comment “The only two former government owned telcos that were
privatised before Telstra, BT and Telecom NZ, have already been down the operational separation path.” this is incorrect. Incumbent telcos in Mexico, Chile, Portugal, Israel, Germany, Spain, Japan, Taiwan and Israel were all privatised before or concurrently with Telstra. Few of them were or are subject to BT or TNZ-style
separation although a few—notably in Brazil and Japan—were subject to regional separation. It is probably worth noting that the functional and operational separations of Telecom NZ and BT were a response to almost negligible take-up of unbundling. In Australia, unbundling has been comparatively successful under the
current regime with nearly 19% of metropolitan lines or nearly 1.4m lines used by access seekers. Whatever arguments there may be for separation, international consensus isn’t one of them.

I should have written merely "the first two Government telcos to be fully privatised" to refer to BT and TCNZ, not the only. It was a stupid error.

But the point I was making here is not that the operational separation in those countries is an argument from international experience for separation. It was in the context of the discussion of new Telstra shareholder expectations of the regulatory future that I raised this point. Nothing about the Government being the vendor should have implied that the Government would not pursue structural reform.

For the record, my support for (forced) structural separation is for the prospective separation being effectively promoted by the Government even since the NBN tender. I had separately argued that I thought voluntary separation is actually in the interests of incumbents.

My support for separation is based on reasoning from economic principles, not precedent. However, I also note that separation alone is not a complete solution. To genuinely create a competitive services industry will also require some tighter rules about bundling as referred to in my post about layer 3 services.

To later 3 or not to layer 3

According to the Oz debate errupted at the Realising our Broadband Future smart infrastructure stream on whether NBN Co should build a layer 3 service or not.

As readers should know the "layers" refers to the 7 layer ISO model that was developed to create open standards. No standards in the real world actually adhere to the model, but at the lower levels it is often referred to. Layer 1 refers to physical indfrastructure (copper or fibre), Layer 2 to the active elements to tur that into a transmission medium (in this case the GPON gear to make ethernet services) while Layer 3 is the layer at which the communications protocols themselves are established including triple a - authentication, addrssing and something else.

A participant suggested that if NBN Co didn't provide an "optional" layer 3 service then the market would still be dominated y a few big guys doing layer 3.

If NBN Co offers a layer 3 service as well as a layer 2 service it will no longer be structurally separated, and the self same problem of competing with its downstream customers will occur to NBN Co as has occurred to Telstra.

People reading this debate need to look more closely at the reference model architecture diagrams, and understand that there are probably 4 ethernet ports on the ONT. Let's just for now label one of these ports "services" and recognise that this is the port that is addressed by the kinds of "trans-sectoral" services that Budde talks about and specifically referred to in his comments in the linked article.

The architecture model fully accomodates the provision of these services direct to premises through Layer 2 with the application provider managing Layer 3 - which will not traverse "the Internet" at all. That is, and this is important, not all services are delivered "over the top" of the public internet.

If Government is sensible it will recognise the benefit of building one infrastructure for these "services" applications that interconnects at all the NBN Co POIs. This is also important because it means these services never form part of the Internet payload, and include no user generated backhaul component. In other words once the line cost from POI to premises is covered there is no marginal transmission cost.

(Note a similar argument occurs over how NBN Co should configure services to use one of the Ethernet ports as an IPTV port).

Layer 3 should NOT be an option for NBN Co.

PS I think the Cisco dude needs to count the number of ISPs out there today already delivering layer 3 service over layer 2 or lower purchased access infrastructure. The risk to market structure will be the extent to which participants can bundle the layer 3 ISP service with other services - either other carriage services like mobiles and voice (through the ATA port on the ONT) or content services.

Monday, December 14, 2009

So that was the Forum

Avid followers will remember my disappointment at the fact that the 2020 summit never had a Digital Economy stream. Thursday and Friday last week I got to go to our very own mega forum on Realising or Broadband Future.

This was a worthwhile attempt to get some meaningful discussion on what the benefits of the NBN will be. There were a number of plenary sessions the content of which was highly variable. The Government is lucky it wasn't charging a fee (more on this later) because they would have been open to a complaint for misleading and deceptive conduct as three of the advrtised draw cards weren't there in person, and only one of the three being beemed in did so live. The plenaries were overfilled with speakers (the tendency of conference organisers who seem to hate the white space of silence, or the possibilities of discussion), and so there was no interplay between the speakers.

The forum otherwise ran in five streams - of health, education, business, community and infrastructure. Paul Budde has put up a description suggesting people discussed key "trans-sectoral" issues - but actually they were issues within sectors about how the technology will be used.

Each stream had three sessions, the first to identify possibilities, the second roadblocks and the third next steps (in other words what else apart from the NBN should we be doing now). I participated in e-community (because I have an interest and because I thought it would help me get my invite). Each stream had an "editor" who reported back to the final plenary - and there was a wiki at which ideas were captured.

If Stephen Conroy's goal was to have 400 people go out from the conference and proseltyse the benefits of broadband, he will have got it. But these 400 were probably doing that anyway. If he really wanted an action list then he will probably be disappointed.

In general the forum continued to be made up of people who don't distinguish between "broadband" and "faster internet". It was made p of people who don't get the importance (and challenge of) ubiquity. And finally thre were way too many people just willing to believe all the good stuff, and most of the fluff. As an example the e-community stream heard lots about how broadband is a democratising influence, and how it will help keep people in regional centres.

Phillip Bobbit in "Terror and Consent" makes the point that al Qaeda is really a giant e-community - totally enabled by the same communications technologies that enable global trade and global corporations. He also makes the point of the "communications paradox" that the better we make communications, the more people want to live closer together in big cities.

There is much more to write on the forum. In the meantime just note that there is a new OECD report that will be much quoted telling us all that "High-speed broadband networks are a platform supporting innovation throughout the economy today in much the same way electricity and transportation networks spurred innovation in the past."

I will write a note on e-community tomorrow I hope.


In the last three weeks I've sent "Havyattograms" to three senior people in the industry that I highly respect. A Havyattogram basically is an e-mail that, roughly, says "How could you say such a foolish thing, don't you know that/realise that ..." A variant of a Havyattogram is that I wrote something on my blog about someone else. I'll usually, but not always, send an e-mailed copy of the post to them.

As lots of people can get Havyattograms I thought I might make a permanent record here of what they are, and by way of standing public apology. While the Havyattogram (let's shorten that to H-o-g) always has the flavour of suggesting the person to whom it is addressed is a fool, that is neither its intent nor its purpose.

I happen to be highly enamoured of the whole concept of the dialectic - that from the interplay between thesis and antithesis comes new tings, the synthesis. As a reasoning art form it was utilised by Plato in his description of the Socratic dialogues. Both Hegel and Marx used the dialectic as a mechanism for describing progress through history.

I'm also fascinated by the concept that behavioural economists call "bounded rationality", that is that economic decision makers do make rational choices, but only on the basis of a subset of all possible information (and hence choices). That comes to be in part because we rely on the stories we've constructed to build our view of the world.

The three recent H-o-g's were;

1. In response to a speech in which the idea that the Telstra network was "paid for by taxpayers" was trundled out as a reason for regulation. It wasn't, and there are other better reasons. Kevin Morgan in today's Communications Day ran through most of the story - hopefully a note I've penned will be run tomorrow and I'll post it here afterwards.

2. In response to a comment about extra regional backhaul and the idea that competition alone can reduce prices. Competition can, but competition cannot reduce prices below cost - and doubling the investment on thin routes is the wrong response.

3. In response to a suggestion by Telstra that it would embrace prospective separation but want to hang onto its HFC network to compete.

I've written earlier about these last two here somewhere.

The telco industry is confusing enough without us perpetuating the "bounded rationality" of these myths. My apoploies to these three fine folk (men actually) and my apologies in anticipation to everyone else who will receive an H-o-g in the future. But I will keep going in the spirit of vigorous intellectual enquiry.

The only thing of which I am certain is that the future can be better than the present and the past. But it won't just happen. To make it happen we have to be prepared to inquire and debate.

Wednesday, December 09, 2009

Major Events

We often ask if state Governments should subsidise major events.

If I'm not mistaken Tiger Woods life went into meltdown after his trip to Melbourne - I guess cause he got careless this far from home and forgot that with electronic media he might as well have been in the US.

Perhaps we should ask the question - should major drawcards take Australian money or is the price too high!

More on comments

I also meant to note in my comments in reply to Jim Holmes to note that another important part for the infrastructure light telco is to work conciously on your market differentiation strategy. The goal is for the network supplying firm to see you as a rational part of a price discrimination strategy, rather than an across the board competitor focussed only on bringing prices down.

AAPT sometimes got that right and sometimes wrong. Most importantly don't give customrs prepared to give the infrastructure owner a price premium a reason for leaving.

Response to comments

I've been getting some interest from readers of lte and rather than responding below their comments I thought I might write a free for all response.

Ian has commented on and NBN post and raised the vexed question of battery backup for the ONT. I think it is time we reframed the whole question of emergency power. How many households have battery powered televisions and radios either? I've written before about the logic of a single DC power rail for saving on transformer losses, but it is also something we should develop to provide a survivability of power across the information and communication devices i the house.

Susan has provided a thoughtful comment on Bradfield and noted that the CDP had the benefit of the donkey vote. She is also right that the Sex Party will struggle to match the by-election result at a Senate election.

Telstra skeptic has suggested that overhauling Telstra's customer service program program will be a big ask. It will actually be bigger than we first thought given that they can't even be truthful in the face they used to promote it, Megan Lane having been outed as a former Telstra PR flack. It was no much this deception as the fact that Lane works in one of those industries flagged in the front screen as over-represented.

I was also disappointed that a response I had from Telstra only focussed on my inability to enrol as an advisor - which missed my point that their enrollment process just left me with an incentive to lie, and that it would have been better to let me enrol but ignore my results. They also don't seem to get that there are some pretty obvious things to fix in customer service - as a friend pointed out today even taxis ring on approach.

Ian challenged my description of John Howard as a great leader. I meant that only within the context of the Liberal part's own assessment, not a universal view. And I appreciate the correction re Hockey's schooling - should have been able to tell he was only CAS not GPS.

Finally Jim Holmes asks what strategy I think a telco like AAPT should be pursuing. The first thing I'd suggest isto pay more attention to their incredibly talented and hard working corporate comms team and work on their key messages and media presence. The second is to invest more in value-adding elements and less on replicable network elements. It remains a disgrace that no one reselling fixed and mobile voice offers seemless integrated voicemail platforms. To achieve this you need to negotiate both the price for access to match eiother free retrieval or deposit or both that occurs in network integrated services, and you need access to the message waitb flags in the switches.

The great pity is that AAPT and Telecom NZ have never worked out how to leverage the capabilities that Telecom has into the telco where they don't own the access infrastructure. I always believed that Telecom NZ had the most to gain friom "unilateral disarmament" and undergoing voluntary separation as I wrote about in the TJA.

Crowdsourcing and the French Terror

In the buzz over the release of the draft Gov 2.0 report the SMH has reported this as recommending "the public service turn to new media for 'crowd sourcing' ideas to elicit feedback as part of an effort to put bureaucrats more in touch with the people they are employed to serve."

Technically crowdsourcing is "distributed participatory design". Or as a reviewer of Crowdsourcing: Why the Power of the Crowd Is Driving the Future of Business noted "In his prescient 2006 article in Wired, Jeff Howe coined the term "crowdsourcing" to describe how the Internet has enabled large, distributed teams of amateurs to do work that was previously the domain of isolated experts or corporations."

An example of how Goverment might run crowdsourcing is the call for input to the realising our Broadband Future conference. People have been asked to contribute ideas before hand, and to participate from outside the event through twitter and all such other forms of new media.

When I was in secondary school I wrote an essay on Robespierre and the Terror followng the French revolution. In that essay I described Robespierre as the great democrat because he responded to "the will of the people" as best he could interpret it. Bobbitt who I referred to earlier suggests that market states will use the techniques of citizen referenda and recall to "by-pass" the role of elected officials (P.89).

The difficulty is how to distinguish between a crowd and a mob. In the Origin of Wealth (I think - it might be in Nudge) there are references to studies about the popularity of music and studies that show the "network or bandwagon" effect of how others rate a song can be more important in popularity tha the song itself.

In a crowdsourced environment it is very hard to distinguish a genuinely good and widely supported idea from a merely popular one. The authors of Gov 2.0 need to remember that, in the end, the guillotine that Robespierre deployed at the whim of the mob terminated Robespierre's life.

Holding to account

The new Abbott-led coalition we are told is going to focus on "holding the government to account". It is a good line, and has been repeated mercilessly in the last few days. But it leaves open what it actually means.

The SMH notes the Menzies line that "the duty of an opposition is to oppose selectively." This is not the approach taken by Tony's new mentor Nick Minchin who has framed the rhetoric of "holding to account". Minchin's performance as shadow communications minister was to try to criticise the Government for not delivering on its promised NBN and deny the Government any legislation to do so.

There are generically three ways to view being in opposition. The first is to try to govern from opposition, that is utilise your numbers together with the numbers on the cross benches to make the legislative outcome actually look like your policy not the Governments. The second is to realise that the purpose of opposition is to allow for renewal - that you have to have the bloody battles of personality and ideology necessary to return to Government. The third is that you position yourself as the "alternative government" which is the way Brendan Nelso described his opposition from day one which is farcical.

Holding the "Government to account" doesn't feature in any of these, for the simple reason that the whole of Parliament is meat to hold the Executive to account. But moving on from that I had an interesting discussion with an old friend on this and we disagreed on the nuances of "holding to account."

I have the view that holding to account means fornensically examining the executive on whether (a) it did what it told the people it would do at the precious election, or any other point of major policy announcement and (b) given the government is doing what it said it would do whether it has done so efficiently.

Discussing the stimulus package is a good example. The coalition expressed a view of alternative policy (not that I could ever figure it out fully) which seemed to be mostly "let the market work it out". Criticising the Government for creating a deficit from stimulus is not holding to account.

What would be is pursuing the detail of the implementation, the fact that so much stimulus money has been spent on programs of doubtful validity - the nonsense over what school building projects got funded being the most dramatic.

Similiarly the coalition harping on about OPEL is not holding the government to account in telco. Letting the government do what it wants to do with legislation and then focussing on non-delivery of the network is holding them to account.

nd so we come to climate change. A scare campaign that the ETS was just a giant tax, and that the coalition can have an emmission reduction scheme without putting a price on carbon is not holding the government "to account", it is pursuing alternative policy.

What we can see is that the coalition is squandering its opportunity to use its first term in opposition for the process of contest between people and ideas. The Abbott frontbench is reactionary in more than just policy - to return to the front bench warriors that a stronger party would be sending off to retirement (B. Bishop, P. Ruddock) is a first order reaction.

But it is in the policy space that I become totally confused - as I think I've said before. But this time I'll try a different angle.

Phillip Bobbit, first in The Shield of Achilles and then in Terror and Consent advances a line that (western) history can be seen as the progression of a series of "constitutional orders". What triggers the change from one order to the next is technological change in killing people - or war. He states that a constitutional order is distinguished by its approach to international and domestic security - in brief strategy and law.

He (along with Niall Fergusson) describes the period of 1914 to 1990 as the "long war" between communism, fascism and parliamentianism as the consitutional order for the nation state. The nation state is identified as the state created by Lincoln in the US and Bismarck in Germany. While wrapped up with the concept of "nation" - i.e. a linguistic and or racial group - it is more about the relationship of nation to state. He writes "The nation state bases its legitimacy on having undertaken the task of maintaining, nurtuting and improving the material conditions of its citizens...give us the power and we will improve the well-being of the ntional people."

But the very techniques and technologies that brought success in the long war - building international trasde, the development of international communications, higher living standards, norms of human rights and weapons of mass destruction - present new challenges that the constitutional order of the nation state canno meet.

The new constitutional order is the market state which says "give us the power and we will give you the opportunities. Market states see their role as enabling and assisting rather than directing the citizen's interaction with choices." (Terror and Consent pp87-88).

This structure creates an interesting framework for the analysis of Australian politics. The formation of our nation state came about following Federation and the adoption of the constitutional order of nation state rather than state nation came about at the instigation of the ALP but in the adoption of the Deakin Liberals of the "Australian Settlement".

Today we see that it is again the ALP that leads the way in the migration to a market state. For all its supposedly neoliberal credentials the Howard Government's only real "market" reforms were the (botched) privatisation of Telstra and Work Choices. The Hawke and Keating Governments had a wider array of achievements under the "micro-economic reform" banner.

And so we come to climate change. It is the ALP proposing the ultimate in market state models - a trade in emissions - and the coalition proposing a solution embedded in the model of the nation state, where the defence of the notional welfare of the nation is supreme.

The Liberal Party really should change its name. It does not want to contest with the ALP the form of the market state, it wants to preserve the nation state. They are nothing more than "conservative".

Tuesday, December 08, 2009

The NBN again

Alan Kohler writing in Business Spectator thinks he has found the solution to the NBN conundrum.

He thinks he needed a speech by David Quilty to get to it. He didn't he could have read my evidence to the Senate committee on the separation bill. Kohler gets close here but has a confusing journey on the way.

One example of the confusion is when he writes;

Telstra could probably sell its ducts and trenches to the NBN because it would only involve the transfer of a monopoly asset, but that simply means Telstra would be renting access to them from the NBN instead of the other way around. Telstra would still own a national copper network, in competition with a national fibre network, which would be less than ideal for both.

And as for “selling customers” … what does this mean? Would I get a letter one day from Telstra explaining that as a result of a deal with the new fibre network, in which Telstra has received payment of a ransom, I am now a customer of the NBN Co? If anyone’s getting any cash for transferring my business, it’s me thanks very much, not my previous supplier.

The NBN Co won't be "buying" Telstra's customers caiuse NBN Co is not a retailer.

Kohler's short version of the solution is;

So the only solution is the first: build the NBN but underpin its business model with a network supply contract with Telstra that would mean the company would migrate its customers gradually to fibre at a lower cost, increasing its profits and ensuring that private capital could help fund the NBN.

This is close to the right and simplest transaction. The absolutely simplest transaction is as follows;

1. NBN Co enters into a special access agreement with Telstra for access to ducts and exchange buildings. Under this agreement Telstra retains the assets but NBN Co becomes full facilities manager and pays to Telstra rental for any facility it uses.

2. Telstra agress to migrate its customers across to NBN Co as the network is turned on. Fixed line voice only customers get their voice service through an analogue socket on the ONT. Telstra pays NBN co the same rental charge for each line as anuy other telco (note these charges WILL be complicated as up to six service providers could eassily be using the one fibre to provide service to a premise).

Under this structure no asset changes hands, and there is no "upfront" payment. Everything is done through cash streams that ultimately link back to users buying services. The fact NBN Co doesn't "buy" the ducts avoids the problem of not knowing how usable the ducts are ( a problem identified by Richard Dammery).

It also provides NBN Co with the maximum possible revenue stream from day 1 - much better than Dammery's other idea of a ballot which does not force migrate customers. The only "issue" left is whether Telstra should be subsidised for the one off cost of cutover - my short view is this is a capuital cost NBN Co needs to bear and amortise in its access fees.

Gov 2.0

The Gov 2.0 taskforce has released its draft report, but the comment time to next Monday is incredibly limited. Then again, any comment time is better tha none.

I have struggled to come to grips with this project. My reasons I think are more tied up with my concerns that the agenda for Gov 2.0 has been mostly seen as being technologically deterministic - doing things to respond to the technology - rather than grounded in political theory.

The crunch point comes in the second dot point of the terms of reference;

make government more consultative, participatory and transparent — to maximise the extent to which government utilises the views, knowledge and resources of the general community

This very simple phrase reflects some very significant changes that need to occur in the way "government" is conducted. We still have a model that has evolved from the 1970s of government as a command and control activity - that the bowels of government determine a policy and then it is implemented - rather than opening up the totality of the program as contended space.

The report refers to new APSC guidelines - but these relate only to public servants participating online and largely reflect the existing values for other media.

None of this encourages the idea that public servants themselves are in the ideas business rather than the processing of ideas (what did submissions say) or implementation of others (the Ministers) ideas.

I haven't read the whole report yet. I guess I should.

Innovation Economics

An interesting post from Florida caught my attention. This was picked up on my daily "Digital Economy" Google Alert.

The post refers to an ITIF report that outlined four competing economic development doctrines.

Conventional Economic Development Doctrine: Developed largely after World War II focussing on competition between states for increasingly mobile economic assets , this doctrine (CED) is based on the idea that the best way to grow the economy is to attract (or retain) capital (usually establishments of big, multi-state firms) by making specific deals that include tax breaks, loans, and grants. The idea is that these mobile establishments are seeking the lowest costs, and the job of a state is to put forth the best package to attract them.

The Neo-Classical Business Climate Doctrine: Both conservative and moderate neo-classical economists are skeptical of the government's ability to pick winners and believe that the best way to grow a state's economy is by a tax code with low rates and few distortions and a regulatory code with as few burdens on industry as possible. Like holders of the CED, they see competitive advantage as largely based on costs, but they generally look at traditional economic development efforts and, instead, favor eliminating firm specific subsidies and using the savings to cut taxes for all firms.

Neo-Keynesian Populism: Ultimately, the goal of economic development is not to help business, it is to help state residents, including workers. Helping business is the means by which to accomplish this goal. However, for holders of the neo-Keynesian populist doctrine, helping workers directly is not only the goal, it's the means. Holders of this doctrine worry less about business climate or competitiveness, and focus more on making sure that the wealth generated in a state goes to the people that need it most. They see most economic development issues as boiling down to a question of who gets the benefits: working people, or rich people and corporations.

Innovation Economics: Holders of the innovation economics doctrine believe that, ultimately, what determines a state's economic success is the ability of all institutions (private, nonprofit, and government) to innovate and change. Because of this, innovation economics (IE) focuses less on issues such as taxes and regulation or the number of firm-specific deals, and more on policies that can spur firm learning and innovation through more generally positive business environments.

(These are very well laid out in table 1 of the ITIF report)

These matters all have correlates in the formalities of macro-economic theory in particular growth theory. The latter seems to me to be the logical correlate of "endogenous growth theory."

This poses the question of what are the appropriate economic policies for innovation economics. The title is perhaps misleading because it is not just about creating an innovation climate or sponsoring research. It includes actively evolving institutions (and in this I would include the classis institution of the firm).


The by-elections on Saturday have seen some extraordinary commentary both before and after the poll. Gerard Henderson has nicely described the "doomsday prophecies" as fantasies of the left in his SMH column. However, Gerard continues to belittle himself by the way he criticises the work of these various academics for being both "left-wing" and taxpayer funded. The critique of academics being left-wing he pursues would be fine if it were based on evidence that right-wing academics don't get jobs. I think there are two alternative realities. The first is that right-wing "academics" reject the University model and prefer the private think tank, and the other is that right-wing "intelligensia" think they should go off and make money, not think.

It is also worth noting that not all the income of Universities comes from taxpayers, a lot comes from fees, and a lot comes from earnings on endowments. It is generaly not possible to ascertain what proportion of any individual academic's income comes from each of these sources. We also don't know anything about how the Sydney Institute is funded other than it is a privately funded not-for-profit current affairs forum. While it is possible that a large amount could come from fairly average individuals, the perception has always been that it is funded from "the big end of town". (That is the description given by Brett to the Liberals may be more apprpriate for Henderson and his Institute).

The fact that the reported academics got it so wrong also reflects the selection process of news stories. A journalist won't get a story run that says "in the by-election nothing of significance will happen". The stories that are run are the ones that make the biggest prediction - and most likely to be wrong.

Ultimately though Gerard makes the same mistake as the academic commentators he critiques - this is the "one swallow does not make a summer" fallacy. By-elections never really reflect the mood at large. They have consistently lower turn-out and a higher than average pre-poll and postal vote (because you can't vote absentee). They are further "distorted" when one major party makes the rational choice not to run - unfortunately this just seems to encourage the crazies rather than just leave the other party to win unopposed.

Bradfield in particular was odd with the Christian Democratic Party (Fred Nile Group) running 9 candidates. At the close of counting on Monday (lots of per-poll and postal still to be counted) the first preference (percentage) results were as follows;

CDP (9) 3.58
Ind (5) 6.00
DLP 2.1
Green 25.88
Sex 3.29
One N 0.65
LDP 0.79
Liberal 55.7
CCC 1.04
Env4NE 1.01
Total 100.04

This means that in leafy Bradfield in the crusty Upper North Shore the sex party nearly out-polled the combined weight of nine christians! They in turn were trounced by five largely annonymous independents.

As for the tipsters, the idea attributed to the ABC national breakfast show that the sex party could win a Senate seat is not actually out of the question. As long as voters seem prepared to spray votes around like confetti these fringe parties can "get lucky" just as Family First did in Victoria.