Essays

The SMH ran part 2 of an NY Times opinion piece tagging the best essays of 2010.

Part 1 explained the awards.

It was in the second part that I found the interesting reference to Lawrence Rosen's interesting article on corruption.

It advances the thesis that one of the difficulties we in the West have with the way other societies are organised rests on different definitions of the word "corruption". We take it to mean acting outside the law or moral bounds.

From Rosen's investigation he suggests the real world definition is;

Corruption is the failure to share any largess you have received with those with whom you have formed ties of dependence.

Think about that a bit. It fits.

The purpose of this post though is to bemoan the poor state of the essay in Australia. Quadrant under Windshuttle has become unreadable, most of the Left stuff makes too many assumptions about the leftist bias of the reader. (I regard myself as left but don't identify with most of the essayist crowd).

Suggestions welcome for the real "Sydney" awards for best Australian essays of 2010.

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An insight into "diplomacy"

The US cables released by Wikileaks tell us something about diplomacy and a lot more about "peddling influence."

Firstly let's think about the US Embassy conclusion that Kevin Rudd is "an egotistical control freak". As this morning's Herald cartoon noted - thank goodness the leak didn't tell us something we didn't already know.

In fact a lot of what goes for background looks like it could (and was) lifted out of the local newspapers. After all, that's ultimately what someone local can do for you.

Diplomats are like any other people - they have a limited range of possible information sources, they need to decide the relative reliability and they need to summarize the information and reconcile points where sources disagree.

The more worrying cables are those suggesting that certain figures, drawn from what could loosely be called the industrial right, were identified as having particular influence with the Government. The article in particular highlighted Mark Arbib.

Now once again the Embassy was only following fashion - everyone thought Arbib was influential. This was especially true amongst professional lobbyists and the gallery.

But analyse further how that influence occurs. Arbib tells everyone outside Parliament that he's influential, so everyone wants to meet with him. Because he meets with so many people Arbib can speak with authority inside the Parliament because of the impressive array of people he can say he's had discussions with.

I'm looking for help here in identifying anything Arbib ever did influence, other than the disastrous walk away from the CPRF. And to the extent that he carried any influence it seems that it was based more on his possession of polling data than personal influence.

So the method is simple - be convincing when you tell people you are influential and people will believe you. It really is that simple!

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It is always nice to be noticed

The SMH carried a short item that looked at the possible improvements to telco customer service that might come from the ACMA Reconnecting the Customer inquiry and the Communications Alliance review of the TPC code.

The item picked up on comments I made in an itNews column.

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A tale of customer service and online marketing

ACCAN's informative weekly newsletter (which you can subscribe to) had a link to what they called the worst online shopping story ever.

The New York Times story was even more interesting than the rating given it by ACCAN. What made it stand out wasn't just the appalling customer service but the explanation of why it can work as a marketing strategy.

The business in question sells discount spectacles, which it in turn only sources online. If you use a search engine to look for a make of frames, this online store features highly. It features highly, however, because it is referred to on so many websites that talk about poor customer service or, indeed, rip-offs.

Searching on the name of the store would show all these links, so poor reputation would hurt you. But it is getting found by people looking for what you do, rather than looking for you that works. Those searching take the high rating in the search engine (or in the old days the display ad in the Yellow Pages) as a sign of "quality".

The lesson is the same as always for consumers. To assess a vendor ask other customers, not the vendor. That is one of the ACCC tips for buying online.

But for me it just works as a really good example of why competition in the market is no guarantee of improving customer service.

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A saga worthy of Homer

The title refers to the Greek, not the author.

In an itNews article this week I outline how the structural reform of telecommunications still has nearly a decade to go, and how it has been going on for nearly two decades already.

What I didn't include was my choice of the "hero" of the saga, the name that surprisingly kept reappearing in the battle lists - and always seeming to be there at the significant times.

The single most notable one was a co-author of the Institutional Analysis report that Tanner released outlining the minority shareholder issues of separating a part privatised Telstra, was present at the CCC/AAPT forum, was the architect of the ALPs NBN Mark 1 and finally was part of Telstra's NBN engagement team.

That person is, a follower of this blog, Tim Watts.

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What is truth?

The philosophical question of "what is truth" is one of those classic issues that can tie the professionals into knots but leave the public bewildered. The void is probably between the philosophers analytical attempt at definition, versus the normal functional definition.

The functional definition is pretty straight-forward really. In our day to day existence a "true statement" is one on which we can rely, they are the statements that we can reliably use as premises for our reasoning about what we should do (be that something immediate and practical like how to start the car or something more broadly social like how to care for the poor or sick).

The philosophers however get more tied up in it. The "correspondence theory of truth" is tied up with additional commitments to realism, and to a referential theory of language. In this case "truth" means something that corresponds to the real world.

This troika is, however, to a degree vacuous; most notably because it provides no method at all for determining "truthfulness". We have no other direct connection with "reality" to determine the truthfulness of a proposition.

In a short piece on ForaTV New York Times' Anand Giridharadas outlines versions of establishing truth. This covers "whatever our ancestors did is truth", "truth is whatever is in our holy book", and science says "truth is whatever repeatable experiments demonstrate".

He then goes on to suggest that things like Wikipedia are creating a new "revolution perhaps as significant as the scientific revolution" of truth being social. "Truth is what large numbers of people collectively say it is."

This resonated with me because I'd read something similar recently - and I can't place where.

But for me the issue is not really new. The first two versions of "truth" are just earlier examples because ancestors and scriptures are just other versions of truth being what is widely accepted.

But more significantly the dominant philosophers of science support the theories that the bulk of science is conducted by believing what others believe not really an extrapolation of experiment. While Popperian "falsification" is attractive, the vast majority of scientific experiments are not directed at falsification but at utility. They work on the basis of "given what we know what more could we do". They start from the premise that the science that everyone else (in the community of scientists) collectively say it is is true.

This is actually very easy to observe in Physics, the subject of much early philosophy of science. There is even some modern evidence where about 80% of theoretical physicists are engaged in varieties of string theory that seem to generate no observable consequences, and posit more new entities than they attempt to explain. Orthodox economics is much the same, an internally consistent set of theories that don't have a strong record of reliable prediction.

The point is that no matter how "confirmed" a scientific theory is, ultimately its truth is based on its acceptance and its acceptance is based on utility. That after all was the great point of Friedman's Methodology of Positive Economics, it doesn't matter if the theory is true (meaning here something like the correspondence theory of truth) so long as it produces useful results. That particularly spills over into ontology - does the use of the concept of "utility" actually mean we are positing the existence of the universal utility.

Ultimately from a social or biological evolution point of view it is pretty clear that humans couldn't survive any other way. You couldn't really live life not accepting that the bulk of other people's pronouncements are indeed true. You couldn't really at every turn go and investigate all the supposed evidence for any claim.

And even if you do go on an evidence search, it will be artificially constrained. The constraint may be other beliefs you already hold, or it might be cultural values.

The difference in a "digital philosophy of truth" as opposed to the most accepted version of scientific truth is the speed with which new statements can be propagated and the difficulty of challenging those that spread widely with facts (more correctly - alternative better supported observations).

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NBN benefits

The SMAge led a report yesterday with;

THE federal government has been accused of misusing research to build the case for the National Broadband Network in an international study that finds the claimed benefits ''grossly overstated''.

Released in London ahead of today's vote in Canberra on legislation to support the NBN, the study finds evidence to support the claims made for fibre-to-the-home ''surprising weak'' and cites Australia as a key example.

The first three-quarters of this would have you believe the study was focussed on the NBN in Australia, it is only when you get to the end that you realise that the article was really about the case for investment in broadband networks in general.

We are told that the report was "prepared by British telecommunications consultant Robert Kenny with Charles Kenny from the US Centre for Global Development."

In his blog John Quiggin tells us that;

Five minutes with Google is enough to determine that

* the Centre for Global Development is a genuine and reputable thinktank, with no particular axe to grind

* Charles Kenny is not what you might call an Internet enthusiast, having written, in 2002, a piece entitled Should we Try to Bridge the Global Digital Divide.

What he didn't realise is that the report isn't a report of the Centre for Global Development, but merely a working paper published on Kenny's blog.

I haven't had time to review the paper in detail - and probably don't even have the inclination to do so. It makes the usual and expected criticisms, that proponents of benefits always choose the best number available to quote (this is the accusation against Rudd), that the benefits of the broadband can't be separated from the benefits of the applications, that the correlation between growth and broadband deployment isn't as would be expected.

All these points are reasons why the decision on an FTTP network can't be made purely on the basis of a calculating machine. No amount of cost benefit analysis is a substitute for judgement.

It is interesting that the paper's principle critique is over the idea of "subsidising" broadband. Ultimately the Government plan is not to subsidise broadband over the long term, it is simply to bring forward the investment using the power of Government. The business plan forecasts the Government's investment will be fully repaid by 2034 (as indeed was all the Government's investment in Telstra prior to any privatisation).

In talking of Government and investments in faster the authors note

But faster technologies don't always triumph; think of passenger hovercraft, maglev trains, and supersonic airliners. Concorde (if it hadn't retired) would still be the fastest passenger aircraft today, having first flown in 1969. It turned out that the incremental benefits of speed to most customers were not worth the extra cost.

But on ABC Radio one of the authors participated in the following exchange;

ALEXANDRA KIRK: Mr Kenny accepts governments can justify spending billions on big infrastructure projects.

ROBERT KENNY: State highways in the US would be an example and we're not against that in principle. We are just saying that if you are going to spend that kind of money you need to have a clear idea of exactly what benefits you are hoping to get when you spend it.

The use of the US Highway network is an interesting one, because that was never an economic project. It was indeed a defence project designed to facilitate the movement of assets in the depths of the Cold War. In particular nuclear missiles needed to be able to be quickly and efficiently moved to avoid ease of targeting.

However, as is detailed in the history of the cargo container The Box the presence of the highways meant the migration of the container, designed for ships, to road transport was an unexpected side benefit.

AS I outlined in my two items on CBA for itNews the problem with a CBA is that the benefits can't be accurately measured, but the utility of the studies is that they help understand how decisions about the network might affect the benefits.

The real difficulty is that the suite of technologies of which broadband is a part are general purpose technologies - like the internal combustion engine - and effect everything we do. They also have high network effects, the benefit grows geometrically* as the number of users grows.

The point of being a GPT is that the benefits and effects are widespread and individually potentially small but in aggregate large. In common with the internal combustion engine you can't also separate the benefits of the broadband from the benefits of the applications, just as you can't separate the benefits of the petrol from those of the engine, or the benefits of the left shoe from the right shoe.

The only distressing thing over the Kennys' paper is the way it has been reported as if it actually proved anything.

Mighty strange was the reliance placed on it by Sophie Mirabella in an item titled The NBN still hasn’t brought the promised sunshine which tries to make a case about the lack of transparency on benefits and uses the Kennys' paper to suggest there aren't benefits.

But scrutiny of the legislation passed this week, and the amendments to it, is interesting. A few years ago the parliamentary draftsman started drafting laws that made Government publishing information in electronic form admissable. In the Bill we see that the Minister is now obliged to publish certain things on the Department website, often formally requiring a fourteen day consultation period.

One of the benefits of ubiquitous, always on, and speed unconstrained internet access is in the Bill itself.





* The reality is that the supposed law on networks - Metcalfe's Law - is wrong. The value doesn't grow as n squared. More likely is the Odlyzko version that it grows at n*log(n).







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The TIO

I wrote an itNews opinion piece on the TIO recently.

Many thanks to Holly Raiche for filling in the blanks for me on at least part of the process by which the TIO came to be. The recommendation for a Telecommnications Ombudsman followed a House of Reps inquiry into Telecom's handling of complaints.

The committee drew heavily n a Communications Law Centre report Handling of Telecommunications Complaints which is in five libraries but I haven't seen yet.

The committee actually recommended an ombudsman located within AUSTEL. Stuhmcke writing in 1998 foreshadowed much of the ongoing discussion about the scheme.




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NBN Co Business Plan

Why is the NBN Co Business Plan summary on the ALP website rather than on the DBCDE one?

Doesn't tell one much, except a reminder this is an investment. Forecast the $27B will be repaid by 2034.


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Measuring the Education and Health (non) crisis

OK I live in NSW. One thing if you live in NSW is that you are assumed to believe that we have to get rid of the NSW Government. The motivation is because we supposedly have crises in all areas of service delivery.

I've actually been defending the NSW Government recently. Our health system actually works well, we have a healthy long living population and we do this relatively cheaply. The few cases that get great media coverage aren't actually cases of a failing health system. Sometimes they are poor individual judgements, and sometimes they are just unrealistic expectations.

Our schools are similar. In fact, on national curricula the issue is about bringing everyone else up to the standard of NSW.

But referring to crises in health and education isn't just a NSW thing. Bernard Keane writing in Crikey today recounts the same tales coming from Victoria and nationally.

But he goes further and provides measures. Our health and education outcomes are near the top of the OECD, but we do it all by spending below the OECD average.

That means these systems are both effective and efficient - the holy grail of management.

Thankfully the Australian cricket team looks like it is about to give us something to really worry about!

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Malcolm in fantasy land

Two SMH articles say the Government is refusing to release the NBN "business case".

From yesterday's Hansard the Member for Wentworth told the House;

If this project were being undertaken by the private
sector—a public company, for example—the management,
or the board would have to present a detailed
business case to their shareholders. They would have to
persuade their shareholders that the project was going
to add value to their shareholdings, that it was going to
increase dividends and that it was going to be a wise
investment of the shareholders’ funds. They would be
accountable to the analyst community. There would be
conference calls, meetings and presentations

Actually wrong. Companies never present their business cases for individual projects to shareholders. They present the overall financial case, and that is the Commonwealth budget.

It also looks like Malcolm is the source of the confusion between what has been delivered (a business plan) and what they want released (a business case). They are different.

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Troubles at the TIO

I noted in a recent opinion piece on the TIO that there is disquiet with the scheme from both industry and consumers.

In particular I noted concern that the scheme had been registering complaints from customers who had not previously sought to resolve the matter with the provider.

News today that one provider is suing the TIO in the Federal Court on this and other matters. The article suggests there are 260 complaints covered in the case but only details;

Exetel disputes about 30 first-level complaints ''where the [TIO] ought not to have recorded a complaint because no complaint had been previously made to the applicant'', and 86 complaints where it was not given the full 28 days to respond. A further seven were allegedly related to the customer's own equipment and four were not related to Exetel's services. (by my count 127 - but this may be the issue not complaint count).

The interesting thing about the action is that the entity being sued is not the Ombudsman as in the person, but the TIO scheme itself. The Board is the entity that has to respond to these charges - yet the Board composition suggests that the Board must be aware of the concerns that have been expressed by service providers.

I need to go get a copy of the statement of claim to understand this better. I don't follow the reference in the article that "Exetel claims the TIO breached its obligations under the Telecommunications Act and its duty of care to Exetel as a member of its dispute resolution service." The case is actually listed in the Fedreal Court as being about misleading and deceptive conduct (i.e. s52 of the TPA).

There is a touch more information in an earlier report in CIO magazine. This was written at the time when the claim had been given to the TIO prior to filing. It asserts that the TIO has been in dispute with the member for nine months.










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Inconsistency of the Senate

Reports today that the Senate has passed a motion calling for the immediate release of the NBN Co Business Plan while the Prime Minister has noted that the Government at least needs to decide if there is information that shouldn't be released. More on the last point later.

It is the basis of the argument I dispute. The coalition would NEVER support a motion that any business was required to publish its whole business plan, even though that plan spends "shareholder money". The way we "protect" shareholder interests is requiring the management to provide the plan to the Board as representatives of shareholders.

This raises the ultimate question, is the Parliament the representative of the people or is the Government the representative? The short and practical answer is actually that it is the Government. The annual budget and estimates process is only conducted at the level of high level measures, there is no detailed scrutiny.

The current motion also includes a confusion of whether what has been delivered is a business plan or a business case. The former is a document that covers all the activities of a company for a defined period. Usually the period is three years but it may be five.

A business case is a study of the whole returns of a specific (investment) proposal. That would be about the commercial return over the whole project (which is still different to a cost-benefit analysis).

That raises the important question of why the first business plan is particularly of interest. Surely the issue should be about what the level of disclosure should be on all future business plan submissions. As I've written elsewhere this is an issue for the NBN Co legislation.

The only potentially valid criticism of the Government is that the NBN Co legislation hasn't yet been introduced. However, the Minister and Government have the perfect defence in the obstructionism thus far deployed by the Parliament, including the entirely pointless NBN select committee.

If Senator Ludlum wants to make his name as a champion for open and transparent government he needs to learn to do it by addressing substantive change to legislation and not engaging in the kind of stunts that we have seen pulled so far.






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The Public Interest

I had reason to be reviewing some radiocommunications issues this week. The Radcomms Act uses a very vague criterion of the "public interest" at some points.

In the history of radiocomms policy a standout article by Any Rand makes a case for the "property status of the airwaves". In it she directs her invective at this very concept.

"The public interest" -that intellectual knife of collectivism's sacrificial guillotine...

It is a great line - highly effective as rhetoric but ultimately entirely vacuous. After all the "anti-collectivist" position as intellectually advanced is that the public interest is a valid concept, but is best served by everyone acting in their own interest.

Which brings me to my CPRF paper delivered yesterday in which I conclude that there is no evidence that the decline in prices in telecommunications services over the last thirteen years has anything to do with the introduction of competition.

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Asset valuation

Standard economic theory says that in a competitive market the quantity produced and consumed will be that which sets prices equal to marginal cost. The definition of "cost" here includes the need to provide a return of and to capital employed. The return to capital employed is what accountants would call profit (but not economists).

There are three interesting cases of how asset valuation problems make this theory unworkable.

The first is the problem of assessing something like the asset value of Telstra's network for determining regulated access prices. The difficulty is all in determining what is the appropriate allowance for return of capital. Technically this is achieved by recognising depreciation as a cost - but the challenge is how to work out the depreciation. Once again the economists have a different approach to the traditional accounting mathematical discounting measures. The economic depreciation looks at how much the asset will be used in different time periods - so if it is a new network whose use grows the depreciation is backended while depreciation formulae would usually allow more depreciation upfront.

But the issue becomes far harder if there is a change in ownership of the asset. The Telstra example is that there are some who would argue Telstra's network has mostly been depreciated (the capital has been returned) and so access prices should be set at that new asset value. However, the asset was sold (in three stages) to new owners who didn't pay the depreciated value of the asset but instead valued the asset on the basis of expected future cash flows. (In the economics biz this is called "capitalizing monopoly rents" and was always the problem of privatisation).

The second example comes from banks and interest rate margins. The Australian banks earn their income on the spread between rates they lend and borrow money at, less the cost of operations plus fees. Their problem is not the return of capital but the return to capital. Their shares are traded on the open market and have been increasing in traded value based upon expectations of future dividend streams. But the higher share value increases artificially the "asset base" that the banks need to get a return on. (The solution is to increase the share of not-for-profit banks and get people to stop expecting bank share prices to increase).

The final example is derivatives. The big debate with financial product asset valuation is whether they should be "marked to market" or not. Marking to market avoids firms artificially inflating an asset value but equally it leads to systemic risk if there is asset price inflation.

Ultimately one failure of standard theory is to ascribe to assets only their value in use whereas in real markets potential purchasers consider assets to have potential value in use and potential value from future resale. Bubbles are simply those cases where the rational purchaser ascribes more value to the future resale than to the value of use.

The biggest divergence between orthodox and heterodox economists is the belief of the former that "the market" is not just a platonic ideal but an actual timeless reality, whereas the heterodox believe that all markets are socially constructed.

It is some benefit to the heterodox that asset values, not just markets, are also socially constructed.

Memo to Joe and Wayne

To Joe and Wayne and anyone else who wants to bob up in the debate on banks, you continue to misrepresent competition.

The suggestion is that somehow or other a lack of competition means that customers can't shop around for better rates. But the economic theory on which competition policy relies asserts that in a competitive market producers have to price to market. That is, in a perfectly competitive market all producers set the same price.

This creates a conundrum for competition regulators that they can't distinguish between the effect of collusion (the same price) and the effect of competition (the same price).

Equally the rejection of "signalling" (a conduct that I've often thought does amount to tacit collusion) can equally be defended as the assumption of free market theory is that all producers and all suppliers are fully informed before they make decisions.

The solution isn't mindless repetition of the word competition - it is to understand the dynamics of the market - and the related problem of asset valuation (see next post).

The NBN - the best post

My apologies to Crikey for reposting one of today's comments here, but it is simply too good to not redistribute. It is a really good explanation of how even "trivial" aspects of the NBN are actually very important.


Gabriel McGrath writes: Re. Keith Thomas (Monday, comments) who wrote: "we have an official estimate, please, of the extent to which the NBN -- if implemented as planned -- will be used by gamers?"

Hear hear, Keith!

It’s about time we swung NBN debate around to the needs of decent, mainstream Australians.
Like Marion Lancaster, a resident of Bribie Island Retirement Village, in North Queensland. She’s one of many retirees there who aren’t as mobile as they used to be, but still need some physical -- and social -- activity. Each week, they play Wii bowling. They’ve found it to be a fantastic social event, and as their physiotherapist Vera Fullerton notes, it improves their fine motor skills.

What could an NBN -- with high speed internet to metro, rural and regional Australia do for them? It could mean elderly residents in Bribie Island playing games against new friends, in Perth or Launceston. They could start and end each game with full-screen videochat, so we have both physical and social stimulation for our growing aging population, overcoming their inability to do stronger physical activities – and the tyranny of distance.

Of course, it’s not just retirees who comprise Australia’s decent mainstream gamers. With 88% of Australian homes having one or more gaming devices, it’s your next-door neighbour, the bank manager and the woman who drives the 514 bus each morning.

Finally Keith, you mentioned the NBN’s ability to improve health & education. You’ll be glad to hear of the fantastic potential of games, and an NBN, to do even more, to improve the lives of decent mainstream Australians across the country. People like the design students from Swinburne’s Faculty of Design, who just won the 2010 Premier’s Recognition Award. Their series of website games help autistic children learn life skills, like coping with change, recognising emotions and non-verbal communication.

Can you imagine, how good it will be when families with Autistic kids -- in the most remote regions of Australia -- can access that? And then there’s the children’s burns units in hospitals, that use a game called SnowWorld, that’s been found to be a very effective anaesthesia for pain management. Wouldn’t it be great for even more interactive games and further studies into their benefits, that are more easily achieved with widespread highspeed internet?

PS: Keith, teachers in Mosman and doctors in South Melbourne may be fine, but I’m not sure their counterparts in rural areas have "sufficient high-speed connections for their purposes". Well, they would tell you so in an email, but the broadband’s really slow at this time of day in the back of Bourke, when more than a few people try to use it.






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Must be news to the ACMA

Writing in the SMH today, to explain the Packer move on TEN Elizabeth Knight said;

Since then there has been renewed interest in free-to-air networks thanks to the allocation of new digital spectrum that has allowed Ten, and its rivals Nine and Seven, to start second- and third-string channels.

Most of these new channels have yet to register much of a financial return. However, there is an expectation that over the next few years the free-to-air networks will be allocated even more spectrum and the number of channels could double.

Given that the ACMA held a seminar this week on the Digital Dividend - which is the recovery of 126 MHz of broadcasting spectrum - I bet they are surprised to hear that more will be allocated.

What Knight is getting confused by is multi-channeling in the digital spectrum already allocated and the fact that the networks are learning how to get more data throughput out of it. Hence more channels, but in the medium term less spectrum.


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The Measles and the Telephone

I'm pleased with my opinion piece for itNews on the ACMA's review of numbering. An interesting part for me in this is experiencing sub-editing from the writer's view.

Today's piece includes the paragraph;

In some ways it's a return to the earliest methods of telephony. You asked the local switchboard operator for the person by name. It was only the advent of automatic switching that introduced the use of numbers for different exchanges.

This is all correct but jumped over the quirky but not necessarily newsworthy story of the introduction of numbers within exchanges. For those into the quirky insert the following two sentences after the first;

Numbers were introduced, according to ATandT as a consequence of a doctor’s plan to “de-skill” switchboard operators during an outbreak of measles.
In the manual days the requested switchboard was still asked for by name.

The story was that in 1879 in Lowell, Massachusetts a measles epidemic struck. A local physician, Dr Moses Greeley Parker said that if the ailment struck all four switchboard operators at the same time that inexperienced substitutes would have so much trouble learning which name went with each of the two hundred jacks on the switchboard that service would be paralyzed. He therefore recommended that numbers be used instead.

As I said, the sub-editing was entirely appropriate. I only include this in the blog for its amusement value.

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How does an industry do this to itself?

I found the juxtaposition of two items today of interest.

The first was reporting of the decision in the latest ACCC v Optus case. The court has thankfully found that advertising a plan as 150GB where there are circumstances where you don't get 150GB is misleading.

What is disappointing is that Optus tried to run a defence that really the ad didn't matter because the matters were fully explained to the customer in the sign-up process. Thankfully the judge, noting

Lurking beneath this evidence is the proposition, not expressly articulated in argument, that consumers do not rely upon advertisements and cannot, in those circumstances, be misled by them. That proposition sits uncomfortably with the size of the advertising campaigns in question which is clearly substantial and inconsistent with an exercise conducted sheerly for the merriment of its designers.

I have, however, previously written of more recent Optus conduct that I think is equally misleading but thus far not prosecuted.

This conduct reflects the kind of thinking that was witheringly critiqued by David Howarth from CHOICE at the ACMA Sydney hearing on last Wednesday. He has undertaken to provide that material as a supplementary submission.

But how is it that the combined intellectual powers of lawyers and marketers combine to convince themselves that such an add is not misleading? Forget the legal definition - it must be misleading as an ad if you think you need to explain it in detail in the sales process. Let alone the underlying behavioural characteristic that - no matter how long the sale process - consumers once convinced they want to purchase something self-select out contrary information.

A more telling example was given in the Four Corners report on bundling in telco sales to small business. This model revolved around bundling a lease for "office" equipment in a telecommunications service contract, the lease payments for which are supposedly paid for out of "rebates" from the telco service model. Where this deviates from the mobile phone handset proposition is that there are seperate contracts and the term is even longer.

Ignoring the matters in these cases that otherwise involved straight fraudulent addition of items to the leases, at the core the issue is the misrepresentation that the goods are "free". At the point later in the sign up process where the fact there is a second contract with a repayment is made clear the salesperson used soothing.

The conduct is exactly the same. In some ways it is worse because the telco industry doesn't have rules about income assessment but the finance industry does - and there are separate finance contracts.

I was somewhat surprised to see ACCCC Chair Graeme Samuel being focussed on the conduct of the dodgy telcos, when the conduct of the finance firms is more reprehensible - they are the ones dealing with a dodgy "agent". If a telco sells through dodgy door-to-door sales the ACCC goes the telco, but if a finance company sells through a dodgy telco it looks like the telco is still the target.

Do I live in a parallel universe where I expect people to behave ethically? Don't these people get it that business is built on trust?


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A Crikey plug

I normally resist linking to stories behind paywalls, but Bernard Keane today has used discussion of "food security" to outline the basic process of creating an effective narrative;

you establish there’s a significant problem, then you provide a solution, explain the solution and how you’re going to implement it and who will benefit.

This is not only sage advice on how to wage a campaign, but also valuable advice on how to critique one. The magic is in establishing there is a problem.

Where many people fail in trying to pursue this is that they define "problem" in their terms, rather than in the terms of their audience. The NBN provides an interesting background. The ALP successfully defined the "problem" as Australia's position on world broadband rankings and chose to solve it by a Government investment. That has been a successful strategy.

The coalition is trying to counter by identifying all government spending as bad. Certainly Malcolm Turnbull has been pursuing the suggestion that itb is the Government expenditure that is bad (on this point I'm a bit confused because someone alerted me to Malcolm writing something on this line in Online Opinion, but all I can find are posts by "Shadow Minister" which is clearly not him.)

The coalition is barking up the wrong tree - after all Telstra privatisation was never popular, especially in regional Australia.

The coalition is also failing in the most common way for combating a strategy as outlined by Keane. The necessary response once the idea of the problem has become established is to acknowledge the concern and provide an alternative solution. It does not work to deny the problem.

The example here is climate change. The coalition did not succeed with a Minchinite denial strategy, what worked for them was the Abbott acknowledgement of the problem but an alternative solution (spend not tax).

As to the actual subject of the Keane post - food security - the Australian food industry is running a campaign effectively for protection on the grounds that we need food security. Personally I don't understand why they think we should be concerned about food security.

If it came to a shooting war we would have no problem feeding ourselves. We even have enough manufacturing facilities and skills to even fabricate weapons and craft. However, I think we have no capacity to produce any electronic goods. Even our US allies now import most of their electronics from North Asia.

Howard on Costello

I have not yet had the pleasure of reading John Howard's autobiographical work Lazarus Rising. I am looking forward to it because Howard at his best was forthright and honest and should be so in the book. Of course, I will also think he will be mostly wrong.

I'm particularly looking forward to Howard on his formative years and the dark days after losing the leadership the first time. I've been led to believe that the book tells the story of the four defining political combatants of Howard's career - all notionally on his side - Fraser, Peacock, Bjelke-Peterson and Costello.

On Costello the Oz published an extract on the weekend. This covers only the latter phases of the decision not to stand aside. In various articles Howard's actions have been described as hubris and arrogance as he first in trying to pressure him to quit, Costello completely misread both [Howard's] temperament and personality and then showed what was best for the Coalition took second place to Howard's concern that he might appear cowardly.

Paul Kelly declares that the repeated theme in Mr Howard's reluctance to retire is the fear that such action would be interpreted as cowardice.

Interestingly that is not at all how I read what Howard wrote. Howard was clear that the leadership could change by Howard standing aside or by Costello mounting a successful challenge. Costello never had the patience for the former, nor the support for the latter.

The telling portion for me is the conversation Howard initiated in 2003. Howard writes;

I told him that it was the views of colleagues that mattered most. He never seemed very receptive to this notion. His rather elitist dismissal of what his fellow MPs thought on a whole range of issues was one of the main reasons why the widespread respect for Costello's abilities within the parliamentary party never translated into enthusiastic support for him as party leader.

Peter is not a good listener. His colleagues knew that. They had experienced it first-hand.

Howard was always encouraged by his front bench to stay because they didn't want to be led by Costello. Howard tried to coach Costello that this was the issue he had to fix, but he never did. On the few occasions where he did try to stake his claim it was by either making public positions about it being time or by trying to broaden his appeal to the public at large.

Neither endeared him to the front bench colleagues whose support he needed most.

The ultimate reason why Costello didn't do a "Keating", that is challenge, fail and return to the backbench to wait the fall of the leader was that Costello could ONLY succeed Howard by default. To stand aside would have seen his colleagues all fall in and support an alternative new leader.

It was not Howard who ever stopped Costello, it was Costello.

Hock-onomics and co-operatives

It would be cruel to use the term "Hock-onomics" to make fun of the shadow treasurer if it weren't for the fact that he invented the term himself.

His latest embarrassment is over calls for what seemed to be regulation (though he changed it to a social compact) of the banks to stop them increasing interest rates by any more than any increase in "official" rates. In doing this Hockey continues his ongoing confusion that low interest rates are necessarily good.

History records that one factor that contributed to the GFC was Alan Greenspan's determination to keep rates artificially low. Not only did it help cause the debt binge, it also meant the US was extremely limited in the monetary stimulus it could provide.

More importantly, the RBA sets its official rate with the spread between official and retail rates in mind. They know that it is the retail rates that affect the level of economic activity. If the retail banks increase the spread by 0.25% then that is one rise the RBA simply doesn't need to make.

What lies behind Hockey's concerns, and indeed Treasurer Wayne Swan's, is that as a consequence of the GFC there was a further concentration of the retail banking industry. The Oz reports;

Bank chiefs such as the Commonwealth's Ralph Norris and Westpac's Gail Kelly have gone to great lengths to explain that in a new world, post-global financial crisis, the cost of raising funds on the international markets is increasing as investors take on a tougher view of risk, thanks to a range of ill-advised investments by banks thousands of kilometres away from Australia.

But this story is totally inconsistent with the suggestion that one source of the strength of the Australian dollar is capital inflows seeking Australia's already high (by global standards) interest rates.

Ultimately the concern is that policy makers have no real way to discern the difference between collusive rate increases to capitalise on market power and genuine need to reflect increased costs of funds. At least ACCC chair Graeme Samuel is alert to the potential for the banks to collude by public signalling of their intention on rates.

Against direct intervention on rates, a potential solution is to resolve the market structure issue. Some have bemoaned the loss of the mortgage originators like Aussie and Rams, forgetting of course that their model of securitised mortgages created the market for un-valuable and ultimately valueless derivatives.

There has been some suggestion that Australia Post could go the route of its New Zealand counterpart and get into banking. David Murray's call for AP in banking stopped well short of that. His vision is more about the opportunities for Australia Post to exploit its distribution network as a financial services "supermarket". However, Australia Post already provides many of these agency services for bank and non-bank financial institutions.

Certainly it would seem mighty strange for the CEO of the Commonwealth Bank at the time of its privatisation to be now calling for effectively a Government owned bank. In any case Australia Post already provides a range of agency services for non-bank financial institutions.

Others have bemoaned the loss of the mortgage originators like Aussie and Rams, forgetting that their business model of securitised mortgages created the underlying product from which the un-valuable derivatives emerged.

At core though, the real concern with the "big banks" is the for "for profit" model. No one objects to the shareholders in banks getting a reasonable return on capital invested, except for the fact that the shares traded on the stock-market bear no relation to actual investment, and the returns seem excessive.

The not-for-profit "bank" sector in Australia (Credit Unions and Building Societies) suffered discrimination by the "system" for many years, most notably their exclusion from direct participation in the payments system. Far worse they lost their income tax exemption in the mid 1990s.

The loss of that exemption was argued by the banks as a requirement to remove the other barriers affecting the not for profit sector. But the logic of the income tax exemption is still valid. The for-profit banks face income tax but they pass profit on to shareholders as dividends which are "franked" - that is the shareholder is credited with the tax already paid. The not-for-profits provide their profits to members in lower prices or higher deposit rates the consequence of which is to mean the full benefit is effectively taxable for the shareholder.

Any not-for-profit whose constitution prohibits the distribution of profit to shareholders/members/customers as dividend or capital return should have its tax exempt status restored. That, combined with the aggressive expansion by AP of its agency facilities, has the potential to dramatically change the dynamics of the Australian retail (consumer) banking market.

There is no need for AP to vertically integrate into being a Deposit Taking Institution to leverage its distribution strength, but this valuable public asset should be used to service a revitalised not-for-profit banking sector.

Novae Meridianae Demetae Dexter delenda est

CBA

I'm very pleased with my two items for itNews on CBA. Now I just need to master the art of "tiny URLs" to tweet that ....

After all these years

After all these years I've finally had a plastic surgeon go to work on my nose.

But don't get too excited, I haven't had a reduction. Nor have I had the scar across it (caused by a fall on a toy truck when I was 2).

No quite simply had a BCC cut off the bridge. So if you see me in the next few days, that's the explanation of the bandage.

Novae Meridianae Demetae Dexter delenda est

Power Crisis; a review

I had the great pleasure of attending the launch (see me at 3 minutes 50 seconds) of Rodney Cavalier’s Power Crisis last week.

The title is a cute play on words, as the book covers the recent ALP history over power privatisation while putting it in the context of the history and structure of the ALP. In doing so Cavalier covers the difficulties of the contemporary left, the ineptitude of political reporters, the absence of leadership and the failing structure of the ALP.

Cavalier has great credibility as a commentator of the Left, having been an active protagonist in that cause for four decades. Over those decades he has gathered a wide reputation for his prodigious written output. Significantly the book portrays Rodney’s love of language and the art of writing. This is not just a book on politics, it is an example of the kind of mastery of the non-fiction craft that is now displayed all too rarely.

The plot of the book is the attempt by Morris Iemma and the Parliamentary Labor Party to pursue electricity privatisation against the wishes of the Party as expressed in a resolution of annual conference. The backdrop to the tale is the history of the party, its great splits and the existence of factions and fractions within the ALP.

Where Cavalier is most critical is the fact that the labels of those divisions within the NSW ALP of Right and Left no longer have any meaning that distinguishes between the beliefs of the two groupings, they are merely the labels of two groups for political patronage.

This provides the opportunity for an excursion, that is based on a Fabian Society address, that addresses the question of what happened to the Left. He notes that the Left no longer has any belief in the socialist objective – be that the broader left as in the ALP nor the group within the ALP that calls itself the Left. Instead of a commitment to “the socialisation of the means of production, distribution and exchange” there is substituted a motley collection of causes, in Cavalier’s words “In the absence of an ideology, gesture politics has become all important to those wearing the label of ‘Left’”.

It is reasonable to ask how it has come to this. After all as Cavalier also notes “The broad discourse of Australian politics from 1941 to 1983 was inside a Leftist prism”.

I will write later more on the whole question of what happened to the Left. For now let me observe that the future for the Left is in redefining what it stands for, and that will be found in the words "the socialisation of the means of production, distribution and exchange". The difference is that it is now not a matter of public ownership versus ownership by a select class called "capitalists", because by dint of things like superannuation "we are all capitalists now".  (And by recollection once Cavalier was asked in parliament why he as a socialist owned BHP shares, to which his reply was something like "There is nothing in the socialist scriptures that requires you to impoverish yourself in the capitalist phase).

The path to a new understanding of "socialisation" is by the rejection of the fundamental precept of the neo-liberals  - that all individuals acting in their own self-interest is the best organising philosophy, both economically and morally. In reality the "golden rule" of acting towards others as you'd like them to act towards you is the most important moral rule. It transpires it is also a fundamental requirement to make market economies work.

The public would have little idea of what is really happening in politics. Cavalier's second target in his book are those paid to report on politics. He makes the criticism that these "journalists" make no effort to understand the historical context of anything, that they rely excessively on the tit-bits they are fed by politicians rather than what they find out and that their writing fits the narrative of power and power struggles rather than a contest of ideas. (My own observation has been that in an election campaign the reports on a policy launch are more about what sector of the community a policy is designed to please, rather than analysis of the substance of the policy itself).

He makes this point throughout the book in a series of boxes in which contemporary press reports incorrectly report what is going on and what will happen. No one features more highly for inaccurate reporting than the Daily Telegraph's Simon Benson who has written his own version of these events as Betrayal. That book ultimately tries to sheet the blame to Kevin Rudd for not delivering Federal intervention. As Cavalier notes, expecting Rudd to be able to deliver the numbers on National Executive was as naive as believing that Iemma could get the vote out of State Conference. Neither controlled the right-wing union dominated citadels of the party.

It is in contrasting the approaches of Curtin and Iemma to implementing a policy that was in conflict with the principles of the party that Cavalier does his best work. In this he is describing political leadership, irrespective of the specific constructs of a party. The story itself, though, is described within the framework of the ALP. However, the words of a leader not able to convince his party could just as well be those of Malcolm Turnbull to the Liberals on climate policy (I am the leader and you will follow me!).

Ultimately Cavalier's major concern is with the structures of the ALP. He has long been an opponent of the union control of the party conference, and rightly notes that the Crean reforms were totally inadequate for the goal of affecting change. In noting that Iemma did not try to sell his case to the party membership he notes there was no membership to sell it to. While making the case for reform to remove the votes of the unions at annual conference, Cavalier reminds Iemma and others that this is a cause he has championed for some time and which others should have joined.

But in this analysis, Cavalier makes this out to be a particularly ALP problem. Elsewhere political scientist like Ian Marsh (in Political Parties in Transition) identify four eras of political parties; from cadre parties, to mass parties, then catch-all parties and finally cartel parties. The catch-all party is the one that on the ALP right represents every polling driven outcome, while on the left it represents the loose collection of "progressive" causes. The cartel party refers to the process whereby parties are publicly funded, both for campaigns and the fact that all "operatives" wind up on various staff.

This disease exists on both sides. Unfortunately John Hyde Page's The Education of a Young Liberal had to be withdrawn from sale, but it told the same tale of a party driven by patronage not ideal, where even sharing the spoils of opposition is more important than prosecuting any case of philosophy.

The disease though is worse for labour. John Faulkner in his launch address (not on line that I've found) referred to the ALP as the political wing of the union movement. This is historically incorrect. The ALP is the political wing of the "labour movement" (or Laborism) while the trade unions is the industrial wing of that movement and philosophy. But the consequence of cartel parties is that both parties become clients of those other factors inside society that are able to exercise power. The most obvious is the power of the capitalists as represented by "business", but close behind them are well organised groups of various beliefs, be they religious or environmental. In the modern age these other forces can be little more than mobs whipped up into momentary hysteria through cascades of tweets and texts and facebook messages and youtube videos. It is the cause of labour that gets overwhelmed in these moments.

But given where we are, how can anything change? Loss of Government in NSW will only make paid positions in unions more important as a place to house operatives. The "reforms" to conference (e.g. central branch) only serve to further hollow out branches. The umions will be just like the Labor appointees to the Legislative Council who failed to vote for the abolition they had been appointed to bring about. Worse the bulk of remaining branch members are aged unionists who date from the days where workers were habitually union members.

My own sorry tale is that I left the ALP in 2006 after the realisation that the Crean reforms meant nothing and nothing could shake union control. At the time I'd read Graham Freudenberg's A Cause for Power. It appeared to me that all previous reform of the ALP had occurred as a consequence of pressure from the outside, not within.

Rodney Cavalier's book and John Faulkner's speech had me regretting that decision. They know what the cause of labour is, and they know what the failings of modern democracy are. I'm just not sure that hankering for the old days and old ways is the solution. Perhaps there are ways through the legislative route, such as requiring that organisations that want to endorse candidates for election must be organised on democratic grounds. But why would the cartel parties pass laws that break the cartel?

But then again I don't have any better ideas. And for anyone who is despairing, this book is an excellent place to start; we need someone to work out an answer.

Novae Meridianae Demetae Dexter delenda est

You wouldn't know it from their submission

itNews has reported that Telstra PP&C chief David Quilty has told the CommsDay conference in Melbourne that "chickens were coming home to roost on customer service" and called for action to head off the potential for tighter regulations to be introduced.

Separately he and IBES executive director Kate Cornick argued that the industry needs to do more to spruik the value it delivers to the economy. One should note that AMTA has been doing that brilliantly for about a decade. Meanwhile the ACMA publishes its result on the benefits of competition each year.

It is unclear from the report whether Quilty made the logical leap that the customer service issue needs to be resolved before the industry can sell its value adding story. AMTA got into the value adding story bit at the same time as it was fighting environmental concerns. But it didn't just talk up the value, it acted to significantly reform the way infrastructure was deployed and communities were consulted.

The problem for me is that Quilty's call for effectively industry wide action isn't reflected in their submission to the ACMA's Reconnecting the Customer inquiry. The only co-ordinated action they saw was for an industry skill program on complaint handling and action to remove "confusing" regulation (see below). Equally in the Telstra strategy on customer service the measures they propose to use are private customer satisfaction and TIO complaint volumes.

This should be contrasted with financial services where the major financial services clients rely on the Nielsen Financial Services Monitor "for comprehensive reporting on the levels of customers’ satisfaction with their main financial institution and/or their home loan provider. Published quarterly using the latest trends data from Panorama, these reports tap into Australian consumer sentiment and reflect the dynamic nature of the Australian Financial sector."

(A report I only became aware of because of Crikey's report of a copyright scrap in relation to the report.)

I've previously noted the available public data on industry "satisfaction." Hopefully the industry, the regulators and/or consumer advocates will decide to draw a line in the sand and establish a single uniform satisfaction measure.



NOTE (for regulatory geeks): Telstra's submission makes the outrageous suggestion that the rules on pre-selection and override codes be eliminated as there are over 24 million mobiles and customers take up bundled offers. Now were Telstra to be suggesting a restructuring of the fixed line resale service that bundled pre-selection and wholesale line rental that would be okay - it was after all the core of a submission I drafted for AAPT in 2005. At that time I suggested that the idea of LCS/WLR and pre-selection being acquired by access seekers separately should be abandoned in favour of a single integrated wholesale product. That product could have resolved the definitional issue between PSTN OTA and the LCS by being a product in which a call that would be terminated in the same LAS as it originated would be done so, while a call that traveresed two LAS's would be routed through the access seeker's network. Interestingly there are "local" and "long distance" calls in both categories.

Novae Meridianae Demetae Dexter delenda est

CIS fantasies

The Centre for Independent Studies is renowned for its fantasies about how “free” markets work. In today's SMH their director and economics research fellow write about Hayek, the free market and interest rates.

Interest rates in Australia are actually controlled, though for economic (price stabilisation) not political (home ownership) goals.

They are right to point to the role of artificially low interest rates in creating the US bubble from which the GFC emerged. Would they like to explain why these rates were imposed by the supposed paragon of the free market, Alan Greenspan?

Will they also educate Shadow Treasurer Joe Hockey on why it is appropriate to keep economic stimulus in fical policy while allowing interest rates to return to normal levels?

Novae Meridianae Demetae Dexter delenda est

How Iraq was like Gallipoli

An excellent column today in the SMH by Peter Hartcher. While this is about the strategy to "win" in Afghanistan it starts with an interesting pen portrait of Lord Downer as Minister for Foreign Affairs.

This portrays Downer as little better than one reading of the Australian Government's engagement in Gallipoli; that is an Australian Government following another Government's instructions for war with no concern for the strategy or the welfare of Australian troops. Is it any surprise the Howard Government as a body rejected any other than the triumphalist, nation building narrative of Gallipoli? They were after all reliving history.

The second part reflects on the honour of defence force personnel, who saved the story till long after it was politically relevant. One of the outraged - Mike Kelly - acted by becoming a successful ALP candidate for election. If only others - like the infamous Godwin Grech - were to follow a similar course.

Finally the substance of the article is excellent on the strategy required. The best quote belongs to Australian strategist David Kilcullen;

It turns out people don't like being invaded - who knew?

It makes an interesting story to stand beside Malcolm Fraser's piece earlier in the week on whether democracy can be "imposed". (Note, this was presciently titled "Libs fail to learn from past wars.")


Novae Meridianae Demetae Dexter delenda est

More on CBA

Phil Dobbie on his Twisted Wire has joined the calls for an NBN Cost Benefit Analysis. He has compiled a pastiche of talk-back commentary trying to suggest a mounting wave of opposition.

That commentary covers the usual list of alternatives; (1) my internet is already fast enough (2) everyone will use wireless instead (3) there are other things (hospitals etc) that the money should be spent on. He unfortunately tags the CEDA front man Michael Porter as the other Michael Porter (he of competitive strategy fame). The Porter analysis is so ridiculous as to be laughable - it is a carry-over from Phil Burgess attempt to convert Australia's think tanks into mirrors of their neo-liberal/neo-conservative US counterparts. Dobbie gets that a lot of this is crap, but argues we need to dispel the crap with facts.

Elsewhere Alan Kohler has repeated that three Australian business leaders have called for a Cost Benefit Analysis. Unfortunately these dudes like many others confuse a CBA with a financial plan or business case for the investment.

Dobbie reports that the Institute for the Broadband Enabled Society is researching how to measure the benefits with work by Richard Hayes. He waffles a lot about how to value the NBN benefits. Ho confuses measuring economy wide benefits with the consumer benefit as measured by willingness to pay. (Though he rightly points out that a CBA values the consumer surplus not just the amount they pay).

But one of the biggest benefit measuring issues is the impact of ubiquity and the fact there are common costs. Let's envision an application relevant to only 100 households. We don't know which they are but know the benefit accrues if broadband is available. That benefit is then only available by ubiquity. If there are thousands of these then their combined effect justifies ubiquity.

But in common with all technology, what benefit can be assessed is constrained by both the inability to envision the future innovations and the over-optimistic transformative scenarios.

As I've previously written it is time to undertake CBA work not to rule the project in or out but to assist in risk and uncertainty management.

NB Can I repeat that Malcolm Turnbull's $10B water plan was never subject to a Cost Benefit Analysis.

And as a further aside. The business leaders interviewed suggested it was time for business to "stand up" to the Government. It is distressing to think business can still run an agenda that suggests it is anything other than complicit in the process of Government - not separate from it. The morphing of political parties from mass movements to what theorists call "cartel parties" has been accompanied by both being captured by the interests of the big end of town.

Novae Meridianae Demetae Dexter delenda est

Methinks he protesteth too much

That's the alternate headline for Simon Benson's article yesterday in which he recounted Mark Arbib's claims that the NSW Right doesn't control Federal Labor.

The reality is somewhere in between. As Rod Cavalier says in his new book Power Crisis the Left and Right are now no longer about philosophy but patronage. In the stoush in Canberra last June the fact it was the Right that moved was merely a reflection of the fact that it creates communication channels and paths. It wasn't a particularly Right revolt - Kevin Rudd went down because of Kevin Rudd.

Ultimately the issue of the NSW Right predates that and it is their control of "internal polling" rather than factional numbers that leads to their influence as Lenore Taylor revealed in the SMH on the weekend.

The NSW Right still represents all that is wrong with the ALP. Removing the cancer may not heal the patient, but without action the patient will surely die.



What's the difference between the NSW Right and the NSW Left? There are some things a member of the Left just won't do for their faction. In my own ALP experience I really didn't want to join either faction, but disliked the Right more than the Left because of the Right's "bovver boy" approach.

Novae Meridianae Demetae Dexter delenda est

The law and competition

I had the pleasure of attending most of a two-day seminar on Contesting Markets organised by the Markets and Society Research Network.

The symposium was a collection of academics highly critical of market theory in all its forms, most crucially of the reliance on "competition" as a policy tool. The range of views was great, from Fred Block who talked about the social construction of the mechanisms by which markets "cascade" - rightly pointing out that the theory of market clearing fails because markets will always have "stickiness" made up of social resistance. There were interesting divergences on labor markets, reproductive biology markets and weather futures markets.

One of the features was a rejection of the mathematical approach of neo-classical economics. This is a point at which I deviate (and in a long ago post on Galbraith I noted this). The issue is not with the use of maths, but the use of the wrong maths. Too much of neo-classical economics rests on assumptions about economic behaviour that primarily exist to make differential calculus work - not because they in any way reflect reality. In this they find comfort in Friedman's fanciful methodology of positive economics.

I really believe that all the factors from market power, expectation, institutions and rules can be modelled - it is just that you end up with complex and potentially chaotic systems.

However, for me a big question remains whether policy makers really understand this stuff. A discussion point is whether the policy makers understand the theory or merely the policy rhetoric of competition, efficiency and market failure. If you do as Lynne Chester has and examine actually existing markets you'd have to conclude that they don't get the theory.

One participant thought they had to understand the theory to buy the rhetoric. But I pointed out, following an excellent presentation from Evan Jones, that "competition" isn't defined in policy. Indeed the definition of competition used in law is a high court definition that refers to competition as rivalry and admits of the concept of seeking to damage competitors. This definition therefore admits into "competition" the kind of "strategic interaction" that the neo-classical model assumes does not exist.

Ultimately the problem is, as Jones has pointed out previously is with law firms who not only represent the big end of town but are the big end of town.

How to deal with the calls for a CBA

Seems that Malcolm Turnbull is going to make an NBN CBA his singular crusade. He returned to it again today in the Fairfax press.

I've written previously about CBA and some of its failings. A CBA certainly won't do what Malcolm thinks it will unless a CBA is conducted on every piece of Government expenditure.

My suggestion that Malcolm is again taking advice from Henry Ergas receives support from Malcolm's suggestion that the CBA should investigate the cost and benefit of upgrading the existing network.

And if the national broadband network is the answer, what was the question? Given millions of Australians already have access to high-speed broadband and the public debate has been how to ensure all Australians have that access, why has the government failed to investigate what the relative cost of upgrading our existing telecoms network would be as opposed to trashing it and building an entirely new one?

This brings us to the question of how exactly a CBA would be conducted. The Senate NBN Select Committee famously recommended that Ergas be commissioned to do the CBA. However, the original piece of work from Ergas wasn't really subject to much analysis. He and I did trade blows in the pages of Communications Day but that isn't online (the CD original report is though.

For the record I'll note two of the problems with the Ergas analysis. The first is that it assumes away the benefits of higher bandwidth by arguing that content will simply be compressed - despite that not being the experience in the real world. The second is that in considering the alternative of upgrading the existing network it ignores the eventual investment in an FTTH network. In fact the expert panel report found that an upgrade of the existing network was;

unlikely to provide an efficient upgrade path to fibre-to-the-premises (FTTP), because of the high costs of equipment associated with rolling out a FTTN network that would not be required for a FTTP network (i.e. FTTN is not a pre-requisite for the provision of FTTP)

However, the fact that one CBA is flawed doesn't invalidate all CBAs. Senator Conroy's argument has been that the benefits (and to a degree the costs) are so uncertain that a CBA would be meaningless. However, that isn't necessarily the case. Michael Gordon-Smith (formerly of the ABA) is now the Australian Director of Hubbard Decision Research, the company built off the book How to Measure Anything. This makes the case that anything can at least be estimated and the process of estimation can be used to identify the size and consequence of uncertainty.

That would certainly be worth doing and is not the same thing as the business case nor the implementation study. In fact providing more information could resolve other simple issues like the confusion over how expensive it will be. Writing on Business Spectator Rob Burgess has compared a BT FTTP roll out to the NBN and questioned why ours is so expensive. In the end he answers it by noting that we are going to 93% coverage not 80 to 90. What he ignores is that the McKinsey/KPMG Implementation Study resulted in the 93% figure because that was what was achievable within the envelope of $43B.

My suggestion is that in conjunction with the NBN work that DBCDE should undertake a CBA of the NBN. However, the purpose of the CBA should be about managing risjk and uncertainty and ensuring optimal timing, not deciding if to build an FTTP network. Similarly there should be no slow down in any construction as it the initial construction will be the only definitive way to reduce some of the uncertainty.

More importantly it would suit new paradigm politics.

Who is advising Turnbull

So Malcolm Turnbull reportedly thinks $65 per month for NBN broadband will be too much for households. Problem is the same article points out the entry price in Tassie is $35.

The claim sounds suspiciously like the numbers thrown around by Henry Ergas. We should remember that Turnbull commissioned Ergas for a tax report that never saw the light of day.

I suggest Malcolm broaden his advisory net.

So how is Intel different

News last week that the Government has signed an MOU with Intel under which the Government will;

•provide Intel with updates on progress and development of the Government’s Digital Economy Strategy
•work with Intel as a sounding board on possible initiatives to promote an NBN-enabled Digital Economy
•Share relevant research on an NBN-enabled digital economy.

Nothing in the release seemed to advise what Intel is giving the Government. It does say that,

This MOU will enable Australia to benefit from Intel’s global experiences in using high speed broadband in areas such as health, education, business and environmental management.

The problem is that Intel is a simple for-profit firm and would have every intention of ensuring Australia would benefit from buying more Intel chips.

It raises the interesting question of exactly what kind of "updates" on the Digital Economy Strategy Intel will receive that other firms (especially Australian firms) will not. Or is this merely a piece of paper promoted by Intel to the Government signed by the Government to create five minutes of positive press?

Fluff not substance. A pity.

The ACCAN "super complaint"

The weekly ACCAN newsletter drew my attention to this article in the SMH about the ACCAN "super complaint" on the cost of 13/1300 and 1800 calls from mobile phones.

As I said about this in my first comment on it, it is a little distressing that this issue has taken consumers so long to come to grips with. It is particularly distressing to see the naivety of various help-lines as demonstrated in the SMH story.

They are the customers of the providers of the 1800 and 13/1300 service providers. They pay those service providers a per minute charge to reflect the fact these are "B party charging" numbers. If they wanted calls from mobiles included they needed to ask their service providers to do that for them. The cost would have been higher, especially back in the earlier days of mobile services. As I noted there was an "originating service" declaration that was designed for the voice providers to get the mobile services included in the free/local rate arrangements.

It is probably not too late for these organisations to "provider shop" and see if anyone will come to the market with a 1800 13/1300 offering that incorporates the cost of the calls from mobiles. This issue there would be what is the access price for the undeclared originating access that the mobile operators could provide? Is it something like the current retail price of those calls now, or is it more like the price of the (declared) mobile terminating access? (An economic argument would tell you the latter).

What has made the issue particularly prevalent now is the growth of the so-called "capped" plans. This has highlighted the issue in two ways. The first is that these calls can fall outside the cap (to many customers' surprise) and hence result in unexpected charges including the category of "unexpectedly high" charges. The second reason is related to this but is more pernicious. The marketing of caps is typically conducted as "X dollars worth for only Y". The X dollars worth is based on the call rate used to calculate prices charged once the "cap" is exceeded. As an incentive for over purchasing the cap, and to increase the supposed "value", the call charges outside the cap have been increasing. The consequence is that the 13/1300 and 1800 call charges have been increasing despite supposedly declining prices over-all.

Ultimately consumer groups need to be complaining more about the whole structure of capped plans, the anti-competitive affect of differential on-net and off-net pricing, and the misleading and deceptive conduct at the core of the claimed value.

I am no lawyer, but I think that ACCAN rather than seeking a new "super complaint" power could more productively initiate its own proceedings - either to injunct the telcos from engaging in that marketing behaviour or to seek damages for the affected consumers.

Rewriting history

Communications Day today has a lead story that begins;

Shadow communications minister Malcolm Turnbull has sought to shed his
media-bestowed mantle of ‘NBN demolisher’, instead emphasising the need
for transparency, accountability and more informed debate on the project.

I thought this a big call - I'm sure I heard Tony Abbott utter the word "demolish" in his press conference announcing the shadow ministry. He did but the usage was a little more nuanced than the media has since used it. He said, in part,;

Who better to hold the Government to account here than Malcolm Turnbull, who is restored to the Opposition frontbench as Shadow Minister for Communications and who has the technical expertise and the business experience to entirely demolish the Government on this issue.

So it is not the NBN that Mr Turnbull is seeking to demolish, merely the Government. While that leaves open the other question of how constructive the coalition plans to be, there is nothing wrong with "holding the government to account". However, to date the coalition has not done that, it has simply sought to delay and obstruct the NBN.

On the single biggest claim - the call for a benefit-cost analysis - it is not good ground for Malcolm Turnbull. Do we all remember his $10B Murray-Darling plan, that not only had no CBA it had not even been referred to Treasury before being announced.

He also demonstrates that he confuses a CBA with a financial analysis, ka a business case. The business case is inherently part of the NBN Co business plan. I am bemused about how anyone expected the business plan to be prepared by anyone other than NBN Co.

The one legislative issue should be the question of the NBN Co enabelling legislation and the provisions in it for providing the shareholding Ministers with a business plan. That part of the Bill could be amended to ensure greater "transparency" of the business plan. It might not be viable to make it full public but it might well be viable to expose it to in camera scrutiny of a joint house committee.

Depressingly, Malcolm seems to have learnt from the republic debate all the tricks the monarchists used to kill a good idea.

Customer service in Telecoms

In a press release announcing the publication of submissions to the Reconnecting the Customer inquiry the ACMA chair Chris Chapman let industry have it with both barrels, saying;

There has been a healthy response from members of the public and consumer representatives. But frankly the response from industry falls short of what we had expected, given the early positive signals from industry chief executives.

Too many of the submissions were little more than reiterations of the current self-regulatory framework and cautioned against any regulatory intervention. I was surprised the telcos did not come up with more constructive solutions to issues they admit are major problems.

I look forward to the industry stepping up with positive proposals to remedy the problems.

I personally find this quite depressing because industry did seem to be initially grappling with the issues. (The submissions don't actually seem to be there to download right now).

However, it can in part be that this is a reaction by industry to the direction of everyone else. The only consumer submission I have seen thus far is that from ACCAN which seems to equally only parrot a decade's worth of comments and rests on a conclusion of the need for more direct regulation.

My own view is somewhat nuanced. I've previously written that, while everyone lumps co-regulation and self-regulation together, that in reality we've never actually tried self-regulation. I also have a view that to try self-regulation may involve some "reverse onus of proof" activities and some programs designed to actively facilitate comparison of offers, views I've shared with industry.

The report in the SMH said that Optus "rejects the hypothesis expressed in ACMA's paper that systemic and enduring customer experience issues do exist", while VHA and AAPT "criticised the ombudsman complaint process."

Meanwhile Telstra said "higher expectations from customers had pushed up complaint levels in recent years," and added it "does not believe the current challenges impacting customer service and complaint handling warrant regulatory intervention."

Which is all really interesting, except that telco customer service really does suck. I remember a great line from AAPT when we embarked on the journey that included the re-branding, the Tell It Like It Is campaign and ultimately Hyperbaric (see note below). CEO Jon Stretch crafted the line that "being the least bad in the industry does not mean you are good."

In the CommsAlliance submission they resort to quoting the ACMA derived stats on "customer satisfaction". However, inside the industry they don't use customer satisfaction scores as there is a case that they are not good predictors of commercial success (see second note below). Instead they use a thing called a Net Promoter Score. A study by Engaged Marketing in 2009 compares the NPS for a few service industries - the averages are detailed in the graphic below.

The poor performance of the mobile networks replicates the data from Mark Ritson in 2006. (see also).

The Australian telcos can perhaps take some comfort from a comparative study that suggests there is a "cultural bias" in Australia that means we expect better service (but don't tell that to the tourists who usually complain about abysmal service standards in Oz). It does not however absolve them from the comparative performance across industries.

It is disappointing that the only counter-data is a member survey conducted by ACCAN. This survey had a very small response rate (45 respondents) and the nature of the questions allowed the answers to revolve around things like "overseas call centres".

To this could be added my own research exercise. This had a slightly higher number of respondents and used a methodology on building on a description of a "quality service provider" already developed by the Consumer Council of ACIF. That research identified that the important areas to consumers in which performance was worst were;

* The service provider is proactive in managing quality, and prompt to repair faults.
* The service provider delivers when and what they say they will, with simple instructions on how to use the product.
* The service provider exhibits ‘best practice’ by being open and transparent in its operations, by taking accountability for its actions, its products and services and its commitments and by being credible; acting with integrity.

These may seem amorphous but really are just degrees of being responsive. These can be contrasted with the four high ranking issues in the ACCAN research;

* Multiple transfers to get to the right person to deal with your issue
* The cost of contacting customer service (e.g. when calling from a mobile)
* Poor access for people with disabilities
* Outsourcing of contact centres overseas

Ultimately the issues are slightly more complicated, they relate to the way products and services are marketed. The "confusopoly" is now confusing the IT department and the customer service staff.

Finally, I attempted another online survey recently that only had 37 respondents. This asked two questions, how good was the level of customer service in various industries and whether it had improved or declined in the last twelve months. Zero is acceptable/no change, negative is poor/got worse and positive is good/got better.

Industry                 Service
                             Level                 Improved
Airlines                 0.31                    -0.28
Banks                 -0.11                    -0.03
Health Insurance   0.24                    -0.21
PC & Elect Retail 0.11                    -0.24
Grocery Retail      0.32                      0.22
Telecc SPs          -0.68                    -0.31
Property insure     0.17                    -0.06

That is telco service providers have comparatively the worst standard of customer service and the perception is it is declining.

Ultimately the telco customer service conversation needs to be engaged in better by all.


Notes:
1. Customer satisfaction as a single shot number is a poor measure because it really maps the gap between expectation and performance.  Consumer expectation is learnt, and hence declines as performance declines.  As a consequence customer satisfaction tends to trend around 70%.  The NPS asks people are more direct question of whether they would recommend their provider and measures the promoters (9 and 10) minus the detractors (1 to 6 (r is it 5)).  The other alternative to get meaning into customer service scores is to measure them across industries or to ask whether it has improved or not.

2. Unfortunately this was another case of AAPT changing strategies mid-stream.  Before hyperbaric had finished it morphed from being all about the brand promise and tried to be about cost saving.  This was despite the project having some serious project management around t.  Unsurprisingly when you change the objective mid-project you achieve neither the old or the new objective.