Friday, January 29, 2010

Lab126 versus Jobs

One of the interesting features of the "facebook for grown-ups" that is LinkedIn is the feature that tells you a bit about the people who have viewed your profile in recent days.

These are often pretty straight-forward and often align with people who have subsequently sent an invitation to connect, some can be related to something where you know you would have appeared in someone's search field (often because of this blog). Today I'm stumped though because my profile had been reviewed by someone from Lab126 which is not only AN company, it is the company that makes the Kindle.

Pretty spooky stuff the day after the launch of the Apple iPad. (Actually more spooky was the number of people at Lab126 who are in the third level of my LinkedIn network.) But it gives me an excuse to talk about the e-reader/netbook/tablet market.

I've only briefly handled a Kindle, I own an Iliad by iRex and like the rest of us have just seen the iPad in the video (I also don't own an iPhone ... yet). The really big differences can be summarised as;

1. A purpose specific device versus a multi-purpose device.
The Kindle is just a reader like an iPod is just a music player. The difference in the memory can also be significant, but not really if you realise the iPad memory will be contended for other things. The devices also have different battery (or charge) life - and that also reflects this distinction.

2. A connected device versus a stand alone device.
Despite the fact the iPad looks like an iPhone on steriods, it probably is better thought of as a multi-function iPod Touch. The "whispernet" solution of content distribution on the Kindle should not be underestimated, especially for subscription periodical content. Even book buying on the road is much easier in this "connectionless" mode. Sure the iPad has kinds of wireless connectivity, but it is the global push model of the Kindle that is cool - and the fact they pulled it off by piggybacking on existing roaming agreements rather than running around the world making separate carrier deals.

3. e-ink versus LCD.
The screen difference is huge. Computer types will rave over the benefit of a colour full motion screen , but serious readers know that e-ink is the only way to go for books. This isn't just an aesthetic thing it really is about eye tiredness and the range of environments you want to read in.

4. The eco-system.
The Kindle eco system is built around the existing power of one book distribution model, while the iPad is off seeking to recreate its iTunes store success. While they've signed partners there is a long way to go, and ultimately for publishers the decision is digital or not - many will likely serve both markets. But we shouldn't forget that there is already a KindleAp for the iPhone and hence the iPad.

I don't think we are anywhere near the conclusion of all this yet. I haven't even mentioned the HP Slate which Steve Ballmer was showing running the Kindle Ap at CES. This runs Windows 7 which means it has got the same touch screen capabilities as the iPad but as noted in this three way comparison there are a lot of problems in getting a desktop OS to perform in a tablet.

It remains interesting as the battle sometimes gets described as a Redmond vs Apple battle, forgetting that one is basically a software house whereas the other is a combined hardware and software. It is a false comparison just as in the Nanny TV show they kept incorrectly comparing a mere producer in Mr Sheffield to a composer in Lloyd Webber. In fact, the geek set who has a dislike of Microsoft should at least acknowledge that it is a separated software house that works with many hardware makers, and when it comes to selling software you don't have to do it through their store!

What still intrigues me is that as we move to tablets people seem to be making a choice between e-ink and LCD. These devices have a front and a back. There is no reason why one can't be made with a selectable screen depending on the task. And Sony does have in their e-reader collection a colour version of e-ink.

The issue then becomes size - the one thing that the Kindle really has going for it. Being single purpose it is slim and light, what you need for being propped up anywhere and reading.

My money is on a tablet running a Windows 8 with dual screens, ten times the memory of the iPad and some version of 4G connectivity. Salivate on that.

Note: The Apple iPad reminds one of the story about Ita Buttrose having to explain to Kerry Packer why, when launching a sister magazine to the Women's Weekly, they should not call it Women's Monthly. Instead they called it Cleo!

Thursday, January 28, 2010

Lindsay Tanner on scientists

Writing in the SMH today Lindsay Tanner has asked for a "scientist to inspire a generation".

Lindsay was referring to Professor Julius Sumner Miller as an earlier incarnation, and he referred to the shows he did for the ABC called Why Is It So?. I actually had the experience of appearing on a later version of that show called The Professor and the Enquiring Minds on Channel 7.

I was, if I say, rather impressive, because I answered all the challenges put to us by the Professor. About two-thirds of the way through my second show the Professor said "I'll get you Havyatt".

I'll now confess my little secret. Before I went on the show I visited the old AGPS bookshop - then at 309 Pitt St I think - and bought all four volumes of the books the ABC had published on the original show. I read them, understood them ,and more importantly remembered them. There was nothing Miller did on the second show he hadn't done on the first!

But the point of Lindsay's item was to talk about the need to find a way to excite kids about science. It was the Science Foundation for Physics at the University of Sydney that originally brought Sumner Miller out, which is the same group that tends for the modern variant, Dr Karl. Lindsay seems to pass over the ABC show Sleek Geeks in his ruminating.

For me, as a person with a first degree in Physics and Maths from the aforementioned University of Sydney, the issue isn't about the lack of "inspiration". That said I do get heartily sick of the gross over-representation of a narrow slice of scientists in national recognition and reward, this being people from "medical" science.

In my own journey through science I always enjoyed the primary school science wherein we learnt about real things. That and the bit of mucking around I did with a friend in which we made a really great smoke bomb by mixing pool chlorine and linseed oil (and two other ingredients I can't remember) in a tin can - the friend is now a Professor of Chemistry at the self-same Sydney U.

High school science was also fun when we "did stuff". I still remember in year 9 or 10 learning about pulleys, and actually doing experiments to show that what was meant to happen did. It was senior high scholl where we were the first lot in NSW to try to new experimental syllabus in 1974 that things got interesting. The Messell textbooks wre dropped and we did interesting things in mechanics where we cllided things and mapped their vectors.

These were, however, mostly experimental verifications of the content we were being taught. From what I can figure out from what my daughters learnt the sylabus has progressed from this to its illogical conclusion. Rather than doing the experiment as verification of content, the "content" has become the scientific method.

While another friend and I had so raced through the year 11 syllabus (OK so we did the whole year in the first of three terms) and we then set about our own experiments (one of my design to determine the effect of friction on the earlier pulley factors and one of his design of transmitting sound by reflecting a laser off a vibrating mirror) I was stunned to find when my ow kids were doing physics that "design and do your own experiment" had become part of the curriculum.

For my money it isn't about having an "inspiration" like Dr Karl or JSM - it is about making the subject substantial. Real content about deep theory - not the current blend of showing how its relevant (the chemistry strand on "corrosion") or on getting kids to do experiments that are meaningless.

Science is also harder now because the days where an "amateur" set up could show stuff are long gone. To do fundamental research you need a Hadron Collider, to do astronomy you need a Square Kilometre Array. Where there is a lot more hope is probably i giving kids better access to computers and the skills to use advanced modelling and maths tools on them. This is probably the step function change needed to revitalise interest.

Mind you, every time I read an item like this I keep wondering whether I shouldn't go teach for a while.

Note 1: I'm trying to find out if Seven still has tapes of the show.
Note 2: I know that seven of my school year started Science at Sydney University (compared to the seventeen doing medicine at one or other Uni - at least three of us could have entered medicine if we'd wanted to). One didn't graduate I think. Of the others I was the only one not to do Hounours (a long story). One of those five had to change his degree to be Arts so he could do double Honours in Pure Maths and Philosophy before his PhD at Harvard, one did his PhD in physiology and is now in Singapore doing interesting stem cell things, and three did honours in chemistry, one being the aforementioned Professor, and another who is now a professional bridge player. Both the third chemist and the PhD in Maths ultimately made their careers in IT.

Wednesday, January 27, 2010

Graduates in Science from Sydney University

Apart from Vic N, are there any other graduates in science from SU who read this blog? If so could they get in touch directly with me, I need a favour.

The hottest 100 and the long tail (with a note on George Gilder)

OK so the Triple J Hottest 100 has been decided for another year.

Managed to listen to most of it - simulcast with the tennis!

My own selections either did very well, or very badly. Here's how they went;

BLUEJUICE - Broken Leg, 5
DAN SULTAN - Letter, no rank
DRUMS, THE - Let's Go Surfing, no rank
GOSSIP, THE - Heavy Cross, 16
LILY ALLEN - Not Fair, 8
LISA MITCHELL - Coin Laundry, 7
OFFICIAL SECRETS ACT - The Girl From The BBC, no rank
SALLY SELTMANN - Harmony To My Heartbeat, no rank

Don't ask me about the logic of my choices - my biggest problem is that by the end of the year I can't remember well enough what I liked.

What I'd love to see is the actual votes. It becomes significant if you believe in Chris Anderson's Long Tail theory, because the long tail idea is that there is a lot of content out there that traditional distribution models "cut off". In the theory new media becomes self-funding through all the new stuff. A good example he gives is of the gross take of movies and his suggestion that if only there were more cinema screens the distributio would follow the "power law" distribution of long tail theory, whereas in reality it follows a "log-normal" distrubtion. The difference in these is shown on a "Zipf plot" (a log-log plot of scalar by rank) - the lowerlaw is linear, the log-normal starts linear then drops off).

I'd love to know the data for iTunes!

But maybe the Hottest 100 voting data would make an interesting alternative. Does anyone know if I can get the voting data?

As an aside - some of you might have heard "Havyatt's Law" - which is "what Intel giveth, Microsoft taketh away". I owe its original formulation to George Gilder, who wrote two books Microcosm and Telecosm. Anderson on his blog has a story about a Wired interview. I think one Gilder quote summarises it nicely;

Over the last 30 years, we've seen transistors (or switching power) move from being expensive, crafted vacuum tubes to being virtually free. So today, the prime rule of thrift in business is "waste transistors." We "waste" them to correct our spelling, to play solitaire, to do anything. As a matter of fact, you've got to waste transistors in order to succeed in business these days.

My thesis is that bandwidth is going to be virtually free in the next era in the same way that transistors are in this era. It doesn't mean there won't be expensive technologies associated with the exploitation of bandwidth - just as there are expensive computers employing transistors; but it does mean that people will have to use this bandwidth, they'll have to waste bandwidth rather than economize on bandwidth. The wasters of bandwidth will win rather than the people who are developing exquisite new compression tools and all these other devices designed to exploit some limited bandwidth.

This interview, by the way, dates from 1993!


Two things occurred this week to make me ruminate on television. The first was the announcement that the ABC will be launching a fourth channel that will be a news channel, the second was yet another in the long running cases of a sports broadcast being dropped for the news.

Let's talk about the ABC 24/7 news channel first. The ABC is apparently using their High Definition channel for the service - which puts paid a bit to ideas that we were all hanging out to see our favourite TV in HD. They also said "The channel will commence with no additional funds from the Government for content. Significant changes the ABC has made to news and television production processes, taking advantage of new technology, will allow the broadcaster to reinvest in new programming."

That also makes sense - you can create a 24/7 news channel by repeating lots of stuff!

Meanwhile SkyNews has complained that this is a breach of the ABC charter, on the grounds that the charter is for the ABC to provide services that "commercial broadcasters are unwilling or unable to provide." Actually they err here, because the charter doesn't say that. It only says they need to take account of the commercial services before deciding if there is a need for a service.

The real question becomes whether a broadcasting service on pay TV can be considered the same thing as "commercial broadcast." Section 14 of the Broadcasting Services Act says a broadcasting service is a commercial service if it provides "programs that, when considered in the context of the service being provided, appear to be intended to appeal to the general public", and it provides programs "(i) are able to be received by commonly available equipment; and (ii) are made available free to the general public."

It might come as a shock to SkyNews - but they are NOT a commercial broadcast service! Hence a 24/7news service isn't currently provided by a commercial broadcaster, notwithstanding that both Nine and Seven (which are commercial broadcasters) are investors.

Poor Seven has copped a bit of flack over the ongoing problem of sports events that run over time. In this case it was a match at the Australian Open between Sam Stosur and Serena Williams that started late and hence had only just got going at standard news broadcast time. This match mind you was not the only for which Seven cut to the News.

Two letters in the SMH criticised the decision. One suggested it was sexist, as it was a women's match, the other wondered why they couldn't move the sports to 7Two.

The sexist line also was echoed by the Sports Minister who today criticised the overall percentage of coverage of women's sport and the trivialisation of coverage that focussed on fashion (without a word about how much male sport coverage is full of equal irrelevancy about the sportsman as anything other than sportsman - did I hear Tiger Woods mentined?)

Richard Hinds writing in the SMH suggests;

It follows that if the network which has paid for the privilege of broadcasting the event loses faith in the product, as Seven did when deciding to abandon the heavily promoted Serena Williams-Samantha Stosur match on Monday to cross to the news and Today Tonight, Australian tennis has a significant problem.

The problem with that trite analysis is that Seven's News draws an audience of 1.5 million, the tennis something like 800,000. What are the 750,000 people who want to watch Seven's news supposed to do? Nine does EXACTLY the same thing when test cricket ticks past 6 pm.

These are rational programming decisions, and not a problem inherent in the sports themselves.

The suggestion by Shona Kirchen in her letter to the SMH about the potential use of the multi-channel is a good one. But the facts are that sports that are on the anti-siphoning list, that is, that are important enough that the government wants them available "free to air" aren't allowed to be shown on the multi-cast channels. Go figure!

You'd think that at least the rules could allow for the sport to shift to the multi-cast channel on the condition that the event runs past its "scheduled" finish time. To ensure "scheduled" finish times aren't manipulated you could have a simple rule about what percentage is shown on the primary channel.

But you see, this is just another part of the politics that plays out between pay TV and free to air TV.

As for the sports minister's suggestion that coverage of sport is sexist, the figure she uses is the proportion of time used to cover women's sport in the sport coverage in news and current affairs programs. That was 9% for all, and only 11% for the ABC with its charter. This unfortunately isn't a figure on live sports coverage. That would, I suspect, be even more weighted.

There are many causes of this, and in part it remains audience demand. Though as I know from some theatre engagement a responsibility of the presenter is "audience development" - educating the audience on new things. The Minister's only conclusion is;

Surely in 2010 we as sports lovers can send a message that we appreciate women’s sport and abilities irrespective of the darnned frocklett. With only 9% of coverage on women’s sport I reckon we can do better - and I for one want to know more of what we’re missing.

I can think of a few more things. They would include greater promotion on the ABC of the women's sport it does have on its schedule. Some encouragement for the ABC in increasing the share for women's sport. Possibly a government sponsored program for additional media training for women in sport (though I'd note that increasingly it is the females who are making media careerrs out of the former sportspeople).

Monday, January 25, 2010


EU regulators are reportedly considering the question of whether the relationship between Yahoo and Microsoft is a "good thing" as a competitive balance to Google.

I'm sorry, but I don't think people get it yet. You'd think after a book called Tipping Point became popular people might understand markets with bandwagon or network effects better.

Making the number two bigger is highly unlikely to have any impact on the number one. If it does it will be at the expense of giving Microsoft something it can leverage up.

The competition solution in the immediate term is just the same as it was at the start of the twentieth century. Regulators need access to, and to use, the ability to apply for divestiture orders.

Retail prices of telecommunications services

A couple of things provide a reason for a blog post on telco service prices.

The first is a comment by Alan Asher that Australian telco customers are being abused by SMS pricing. He was commenting on a report that;

Australians are paying the highest prices in the world for text messages, which cost the mobile networks practically nothing but earn them millions in profit each year, industry experts say. Australians are expected to send 20 billion texts this year, more than 20 per cent higher than last year. While the cost of mobile phone calls has declined in the past five years, the standard flat rate for a text message at Telstra and Optus has remained unchanged at 25 cents. At Vodafone, a text is 28 cents.

This makes the fundamental error of trying to report on the price of a component that is only ever bought as part of a bundle.

The same error was made by the ACCC. In releasing their discussion paper for a current review of Telstra's retail price controls the ACCC has also referred to (at Pp14-15)a paper they commissioned on the regulation of fixed-to-mobile calls (F2M).

In doing so they repeat the same error as the one above on SMS. They note the failure of F2M prices to decline as fast as mobile termination (MTAS) prices, but don't mention that National Long distance prices over the same time have continued to fall even though the PSTN OTA prices haven't.

Both criticisms need to recognise that operators have one pool of fixed costs and a relatively smaller pool of variable costs to recover in relationships that by necessity involve buying a bundle of accesses. Operators are not required to apply an eqally proportional mark-up of those fixed costs in proportion to the variable costs, and indeed there is a good theory that suggests that would not be welfare maximising.

Meanwhile, however, Alan Asher in Communications Day on Friday has surmised "we’re predicting a highly active year in terms of enforcement, as ACMA and the ACCC battle it out to ensure they don’t end up named and shamed in ACCAN’s ’sleepiest regulator’ contest!"

As a suggestion he might like to urge the ACCC bring action against those telco plans that talk of "$X worth of calls for only $Y". The value of the calls is what I actually pay for them.

Meanwhile, of course, the report we started this with has got confused by the same thing. No one is really charging 25 or 28 cents for SMS, because you get a certain number included in our "cap". They need to keep the headline single SMS price high to inflate the "value" of the cap.

We don't need any retail price controls, we just need clarity in advertising, and perhaps a concept called a RECAP in the book Nudge.

Friday, January 22, 2010

Access to public sector information

One of the topics in the Australian Gvernment's agenda on the Digital Economy has been about providing access to public sector information.

My understanding is that this issue was a particular interest of former advisor Tim Watts, who had been a great follower of Tom Watson MP. Today Watson has blogged with pride about the launch of

I haven't spent the time looking at this in detail yet, but it certainly looks like an interesting site. One feature is the ability for users to make suggestions about data needs. Onecaught my eye suggesting "Give consumers the opportunity to quickly see the cost of crude oil and fuel cost. Data on oil companies profits per day or per annum. Highlight how much Tax goes to governments."

It is interesting in the context of the Australian Government's failed "FuelWatch" proposal and the endless exercises the ACCC goes through gathering data and reporting the price cycle. But nowhere do they make the underlying data available.

I find this of minor interest because I had a letter published in the AFR many years ago on petrol prices. In that letter I pointed out that the the price of a litre of petrol depended on both the variable cost of oil and the relatively fixed cost of refining and distribution. It would be nice to be able to access all the data the ACCC gathrs on oil and fuel prices to do some better analysis of this. Put that another way, why are we dependent upon the econometric study conducted by the ACCC with neither the data nor methodology being public, only the conclusions.

The Government's Gov 2.0 taskforce concluded that;

Information collected by or for the public sector — is a national resource which should be managed for public purposes. That means that we should reverse the current presumption that it is secret unless there are good reasons for release and presume instead that it should be freely available for anyone to use and transform unless there are compelling privacy, confidentially or security considerations. .

Unfortunately the report did not go as far as what is occurring in the UK. The focus was mostly on the copyright status and the self-reporting by agencies of making data information available.

As I've already noted privately to Government we still have some way to go. One of the portfolio agencies under Digital Economy, the ACMA, publishes information as *.pdf files that are locked from being able to cut and paste from. This includes documents that are made up of mostly numerical data!

Perhaps the officers in the Australian Government should watch out for the forthcoming item in Prospect magazine about which the magazine claims;

Prospect has uncovered the story behind Tim Berners-Lee's work deep inside British government, and his remarkable success at busting open a closed, data-hugging state. ... The story we uncovered will be on the cover of Prospect magazine’s next issue (out on Thursday 28th January). It is a tale of star power, serendipity, vision, persistence and an almost unprecedented convergence of all levels of government. It is the best sort of policy story: one where the policy works, the good guys win, and public interest is served.

Sounds almost better than the Millenuium novels (of which more on another day, perhaps).

Things one might regret

We all do things we might regret. Sometimes that can be because you embarrass your family members.

For example, both my daughters were horrified when I went to the audience of Q&A - they were more worried about hearing my distinctive laugh tha my dumb question. As it transpires I had friends who told me they'd heard me in the audience before they saw me!

Anyhow that's a long lead in to the fact that I've never done anything to match the contribution of the new enator for Ma.

Watch the original and weep, and feel for both Scott Brown and his daughters!

Thursday, January 21, 2010

This is a seriously good podcast - Twisted Wire on customer service

Phil Dobbie, as a former telco marketing exec, knows what he is talking about in this podcast on telco customer service - or more technically when he asks "is telecommunications a shonky busines".

The podcast is really worth a listen - but Dobbie surmises that it comes down to five things; pricing, over-promising, spurious services, particularly intrusive marketing and poor processes.

The really bad news is that every telco will listen to this podcast and do a number of things;
1. They will blame customers for either having unrealistic expectations or not bothering to understand what they are buying (and not notice the inherent contradiction between these),
2. Make a new resolve to be "customer centric" or "straight up", brief the adverising agency and change nothing else.
3. Claim that it is really about every other telco but not them.
4. Take refuge in the fact customers keep buying stuff from them.

Nothing will change until senior management at telcos decide that enough is enough, and that it is time to improve the whole industry's reputation. Unfortunately I see little hope of that in the immediate term.

Despite the hopes of some in the consumer lobby it is impossible to regulate for good customer service.

Even the telco that is our biggest probably won't get it. They have recently announced that they have amajor project underway on improving their customer service. When I sent the CEO a note to explain how their processes designed to differentiate the customer service received by a retail and a wholesale customer had resulted in a crap service experience for a customer (my daughter) the CEO got the point and replied, but the officer to whom he referred the note to didn't and answered in relation to what was a minor part of the note.

I am not obsessed with AAPT

Truly, I am not obsessed by AAPT, but I do want to note the comments made today by AAPT CEO in Communications Day forecasting the year ahead.

He made four points;
1. 2010 will be a game changer, given the regulatory agenda on the NBN. He thinks what happens next will determine if a truly level playing field will emerge.
2. He thinks convergence is finally here. He also thinks the dominance of wireless over fixed will be consolidated over the next 12 months. He really thinks mobility will be favoured over speed.
3. People will continue to choose smart devices over a proliferation of devices.
4. And he says the standard line about continued marketplace consolidation still stands.

Interesting points wit which I totally disagree.

While 2010 will be momentus and there are big regulatory issues on foot, these will take between three and eight years to fully play out. And nothing i the short term is going to change the significant advantages Telstra and Optus still have from sheer scale in the retail market.

Convergence is no more here this year than last year - it is a process not an event. We will continue converging. As for the suggestion that consumrs will choose mobility over speed the facts are that nothing in the data suggests that many customers are substituting wireless data for fixed - they are getting both. The twin demand is mutually sustaining.

Having just acquired a TiVO and still eying off a Kindle, I can tell you that I for one am looking for purpose built connected devices. I can read e-books on a PC, I can use Windows Media Centre and online EPGs to run a PVR. Neither is as convenient as a Kindle and a TiVO.

Finally it is great to see the standard line about industry consolidation - it is just that it has never come true. he number of licenced carriers has increased every year since 1997. Yes mergers take place, but at a slower rate than new entry.

But the real challenge for Broad if he believes what he writes is how to come up with a strategy. The Telecom acquisition of PowerTel was built on a belief of the need to reduce cost by acquiring network. If the game is about wireless not about fixed where can he go?

Maybe there is some truth to the rumour that Broad is trying to sell AAPT (consumer at last) to VHA.

Who would have thunk it

A report today in itNews that claims "embattled telco gear makers" are headed for a "shake-out".

While we've watched in some wonder about what has happened to the automotive industry over recent decades it should be noted that similar changes have been happening in other industries.

The car case is well known, that from the heady days of Galbraith being able to write in the sixties in The New Industrial State of how we really lived in a planned economy but the planners were the giant untouchable corporations. A pin-up example was General-Motors followed by Ford.

Then we had Tom Peters in In Search of Excllence cataloguing the failures of the Detroit car makers to open their eyes or windows to see that what they were making didn't fit what people wanted to buy - especially following the sudden move to small cars following the oil price shocks of the 1970s.

On top of that you had Milton Friedman in Free to Choose claiming that the market power of large firms was the only market failure we (or Americans) should worry about and that the solution to that was reducing trade and investment barriers.

As the market became global, so did the car companies as an endless dance started to play out of various alliances and mergers trying to create global conglomerates. Meanwhile, Toyota just kept chugging along, from making slightly tinny cars in the 60s to being a leader in technology and quality.

Now we see in the telecommunications equipment market a similar unfolding story. Back in the 60s there were still a lot of vendors - often spooled out of the country's orignal network provider. We see the same unfolding pattern of mergers and alliances culminating in the Alcatel-Lucent tie upand the Nokia Siemens tie up (the latter originally under my former Telstra colleague Simon Beresford-Wylie).

We also saw the emergence of Huawei, first as a firm renowned for its ability to "backward engineer" a solution but now a leader in the field of R&D of new equipment.

There is another feature in common - both industries make extensive use of outsourced manufacturing (as does the consumer electronics industry).

These are big changes. But what challenged the dominance of the former giants was the opening of markets so the geograhic boundaries of competition changed. That can't keep going. Yes there is still a stage in car manufacturing to play out to see what happens as China, India and others turn their minds to it.

But the magic the Milton Friedman identified as the way to affect the monopoly power of the big US firms isn't available to us once we have global firms in a global market. And while new giants can and do emerge, think Microsoft and Google, the facts are the number of genuinely new technology areas are relatively minor, while the speed with which these new industries emerge with a dominant firm has accelerated.

There appears to me to be no doubt that economic policy makers need to turn their minds again to the determinans of industry structure and question whether some new rules are required to achieve the benefits we expect from "competition".

Wednesday, January 20, 2010

Make up your mind

Is Theresa Gattung's forthcoming biography called Second Act as per the blurb, or is it Bird on a Wire as per the cover and the bits of media about it?

Some of us will be reading with interest, especially the bits about how "the company struggled with the Australian AAPT acquisition." Why do I think that this is not going to align with my view of the strategic errors that were made, most notably the dumb decision from day one of a "trans-Tasman" internet and mobile business, during which time AAPT lost so much of its momentum.

One NZ commentator has listed the 10 questions he'd like answered by the book. Unfortunately it is behind a paywall. I can reveal though that he provides this link to an address where TG said;

Think about pricing. What has every telco in the world done in the past? It's used confusion as its chief marketing tool. nd that's fine, you could argue that that's helped all of us keep calling prices up and get those revenues - high margin businesses - keep them for going a lot longer than would otherwise have been the case. But at some level whether they conciously [unclear] figured it out or not, customers know that's what the game had been, they know that we've not been straight up.

In fairness I think TG was at this point trying to make the case for being a Straight Up telco, in line with AAPT rebranding. But it wasn't the best way of doing it. It's like the person who in the middle of a long discussion prefaces an answer "let me tell you the truth". Huh? You mean eveything up till now hasn't been? You can't announce you are now going to be truthful.

He also muses about whether she will engage with the question of "whether interviewers concentrate on how Gattung talks because so much of what she says is dull."

The last comment belongs to a friend who I think would prefer to be anonymous;

I wonder if she’ll spend a few chapters dissecting her evolving “style” (yes, I use that term loosely) and her fight to maintain integrity in her identity by wearing obscene amounts of pinks and florals?

Monday, January 18, 2010

On efficient markets, bubbles and monkeys

In one of the most bizarre pieces of reasoning of all time Eugene Fama has told John Cassidy in the New Yorker that the GFC was due to a global recession which meant people couldn't pay their mortgages. Most of us thought the recession followed this, but not acording to Fama.

You see in Fama's world rational bankers would nly have lent money to people who could repay them, so for people not to be able to repay there must be some exogenous cause, namely a recession. Thankfully Fama admits he is not a macroeconomist - because no macroeconomist could find evidence of an ACTUAL recession before housing prices started to decline.

Fama is relying on a perfectly reasonable - though perverse - type of reasoning. I assume X is rational, therefore everything X does is rational. He simply doesn't allow for the three facts of the GFC - (1) herd behaviour in pricing housing assets (see below), (2) a flawed risk model that assumed the risk of simultaneous downward movement of prices in housing couldn't happen and (3) herd behaviour in pricing credit assets (see below).

Ultimately Fama's defence of his efficient markets hypothesis is that at all times the market accurately reflected all the known information, it just couldn't factor in the unknown information which was about a recession...or what he called "economic activity" which economists can't help us with.

Is it any wonder that Lusha the monkey has reportedly outperformed 94% of Russian bankers? Of course, this is finance not economics. But I guess they all have the perfect Fama excuse. "We accurately predicted the market, it is just that the world changed in unexpected ways".

The whole Fama interview is worth a read.

Meanwhile over at The Economist last week they were again warning about asset bubbles. Most notably they said "In housing, a measure based on rents shows that American prices are back to fair value but prices in Britain, France, Spain and Australia are all 30-50% above their historic averages. Low mortgage rates (and government schemes to head off foreclosures) have stopped prices falling to the lows of previous downturns."

This does raise the really interesting question of prices - and whether asset prices are best measured on fundamentals (the total return you think you could generate by USING the asset) or by markets (the return you could generate by SELLING the asset). The problems emerge over what to do when the two diverge - especially what to do from an accounting point of view.

Accounting is not counting - it is a artificial construct designed to provide useable information for decision making. In fact accounting is a very Feyerabendian science. A key issue in the GFC was "mark to market" as an accounting rule. It was introduced as an accounting rule to stop firms inflating their valuations by dreaming up future revenues - masthead revaluations in newspapers were classics.

But it had disastrous consequences in the GFC. Firstly banks lookd to be making a fortune by marking tomarket all sorts of assets fuelled by an asset price bubble. But worse was the need to mark to market as they came down.

In reality a far better view of accounting would be assymetric. Assets should be valued only on fundamentals if you want to revalue them up, but must be marked to market if market prices are below the valuation on fundamentals.

Wednesday, January 13, 2010

Crowds and racism

Looks like I'm not the only one concerned about he potential for "mob" bhaviour on the Internet. An item in the New York Times (thanks Rachel) reports that the man who popularised the term "virtual reality" now "wonders if the Web’s structure and ideology are fostering nasty group dynamics and mediocre collaborations."

Mwanwhile a reader of this blog has had a recent effort to use Facebook to act against racism reported on in the Oz. But his numbr of registrants pales behind those reported by Crikey for sites with names that echo the racist behaviour of which Tim complains.

Meanwhile the question of whether Australia is becoming more racist is interesting. I don't hink it is, I just think the opportunities to reveal our inner racist are becoming more prominent.

To use he example of shouting at a roup to "speak English you are in Australia now", I would repot hat the nmber of occassions on which such a statement could be made has dramatically increased, henc even without an increased tendency there would be an increased incidence. It is also worth noting that the very high number of student visas means the nmber of people likely to have English as only a secod language is greatly inflated by student numbers.

The second thing is that we need to distinguish between anyone making an observation about a tendency that might exist in a racial grouping and racism. The difficulty is in distinguishing between, say, many Asian are bad drivers and the statement because you are Asian you are a bad driver. The first can be an accurate statement of bserved fact, the latter would be racism.

Around where I live a better example is that a lot of Asians walk on the road at night, and, far worse, they walk on the left in the direction of the traffic, not on the right as we were told in primary school. Whether this is because they come from places without as many cars and so wren't taught, or were taught to walk on the left because that is heading into cars that drive on the right I don't know.

Similarly, and I don't know why, I tend o see more Asians travelling on public transport in groups of four or more. Once groups of that size start talking on public transport they tend to shout a bit - be that in a group of facing seats or, where I sit, across the seats at the end of a carriage. It is not the choice of language that bothers me - it is just that it is a very loud conversation. And, as I say, a good nine out of ten of hose would be a group of asian peopl speaking an asian language (I've certainly in the last couple of months had on Korean, one chinese and a few othrs that I cn't be sure of).

To make hat observation is, I think, not racist. But it might really help the cause of peopl trying o reduce the sense of racist sentiment if we could make sure that what really is bad behaviour is not excused merely on the basis of race.

Monday, January 11, 2010

What I did on my holidays ...

by Stephen Conroy Class 4B

We know that the Minister ducked back into his office to release the Digital Dividend green paper. We know now he's also found time to get over to Las Vegas for the Consumer Electronics Show. Because he gave a speech I guess part of it at least wasn't holidays.

He makes a good case here for why the Government has pursued the course it has with the NBN. He said;

As modern economies are market-based, the transformation of our traditional economies into digital economies is appropriately market-led. However, the transformative powers of digital technologies have broader implications for our communities – our societies – as well. Therefore, when formulating strategies to deliver the maximum economic and social benefits of the digital economy, it is important to understand which sector of society is best placed to progress which element.

Firstly, the Government’s primary role is that of an enabler – as demonstrated by our broadband investment and role in bringing the community together to establish the foundations for the future. Government should enable individuals, households and businesses to take-up the opportunities raised by the digital economy.

Secondly, a successful digital economy requires a digitally-confident and creative industry. We need an environment that encourages and nurtures digital skills development and digital capabilities.

Thirdly, we require a digitally-empowered, confident and literate community. This is a community that enjoys inclusive digital participation and the benefits of online engagement, leaving no-one behind.

He goes on to suggest that the NBN is already having positive outcomes;

Already, the NBN has stimulated new activity in the Australian ICT sector.

Melbourne University has launched the Institute for the Broadband Enabled Economy to develop and test applications and services in areas such as e-health, e-education, e-commerce, and environmental monitoring. To its credit, it has already attracted a strong selection of international partners – Alcatel-Lucent, Cisco, Microsoft, Ericsson and NEC, to name just a few.

In November we saw Ericsson launch a new centre of excellence for IPTV, servicing customers across the Asia Pacific region but based in Melbourne, in part thanks to plans to advance Australia’s broadband capabilities.

The Government is also a strong supporter of National ICT Australia (or NICTA as it is known), a national development and commercialisation incubator for cutting-edge digital innovation. NICTA recently launched a new laboratory complex in Sydney, which I am sure will see it continue to grow its research and standing with international partners, and lead to additional commercialisation opportunities.

All of these activities help demonstrate a broader agenda in Australia, via the NBN, to enable our national capability to lead in the global digital economy.

Unfortunately I do not share the Minister's optimism. In particular I find the IBES to be a very tired model of digital economy thinking. It has organised itself into five streams that look scarily like the streams of the Government's own forum; of health, education, infrastructure, business and communities.

I personally find the health and education agendas grossly overworked and over emphasised. The communities piece also needs serious work - it is too full still of digital democracy boosterism.

But the bit that really disappoints me is that economics has been stuck in with infrastructure into the Network Deployment and Economics reserach stream, while the Service and Business Transformation stream is made up of old-fashioned e-commerce research.

Somewhere we need a really good research project in Australia on the economics of the Digital Economy. It is a society in which bandwagon and network effects become far more important. It is a society where all production is supra-national, and hence hard to manage the ordinary anti-trust provisions, it is a society in which the assumption of natutral limits to firm size completely break-down. It is, in other words, a society in which most of the assumptions of market theory become harder to sustain.

What we don't know is the right way to analyse that kind of world. There are as I've written lots of dissenters but no challengers.

Until we start discussing the real disruptive effects of ICT as a GPT we are just playing on the surface.

Is it just me...

or do the comments on Peter Spencer seem to be more based on ideology than anything else.

Michael Duffy went in to bat for him in Saturday's SMH. I don't quite get what the relevance is of Spencer's history in PNG and all that is, except that it gives an alternative explanation for the property being over-run by native tress to that he gave in Court.

In court he claimed that the over-run was due to the land management practices of the ACT Government. But in the Duffy article it seems to be because he left the land unmanaged while he did other things.

You know, down in the city we have endless arguments about people who don't maintain their houses and land properly. Today Tonight especially should be aware of this because they do all the shows on it. But we are meant to feel sorry for a landowner who decided not to maintain his paddocks and then complains when he can't re-clear them.

Perhaps the "property rights" group here is also unaware of all the laws on rights-of-way and the fact that if you don't stop people crossing your land, after a certain point the people who have been crossing have a right-of-way to keep doing so.

The labelling of which Government etc is also strange. Some commentators on the Duffy article get angry because they tink it is a Labor government action, but others want to claim the action should be against the Feds not the States because the Feds induced the states to pass the laws. In that latter case it would b a Howard Government law.

What we do know is that Spencer has been offered $2M for his land, and he owes his family $1M for the bank loans they paid out for him. That would leave him with $1M. We don't know how much he invested, but he is certainly not being left destitute.

We also keep hearing about the idea that the purchase price has been based on the value of the land after the passing of the native vegetation legislation, and the implication is the land was worth more when it could be/was cleared. But I haven't seen anywhere a report on the actual difference between the two. All I have seen is the comments in both the Duffy article and the earier Oz article that the land that now can't be cleared was marginal farming land at best. In other words, the gap between the two valuations is probably three tebths of stuff all - especially since you'd have to discount the other price by the cost of re-clearing.

If people really think there is a property rights issue here, then call on an inquiry into whether we need a national property right protection from the action of the States in our constitution. Or better, let's just solve it with that other wonderful idea - abolish the states.

Friday, January 08, 2010

More on Spencer

Interesting revelations today in the Oz on the Peter Spencer saga.

This time it is the revelation that basically Spencer simply wasn't making a go of his farm anyway, is in debt to his family, and has a history of attention seeking stunts.

This story is now a story about the media - how the modern media latches on to a story and promotes it as something it is not. Sometimes they even like NOT knowing the facts because they like to end the story with just these kinds of revelations.

This issue is important because it shows how "democracy" changes in a world with the greatly accelerated information dissemination technology, you get "mob" behaviour as the "news" disseminates faster than the analysis.

Thursday, January 07, 2010

Gratuitous Self-promotion

Ahh just thought I had to give my readers the chance to hear me on Twisted Wire.

Judgements against Spencer

I want to add to my note of last night on Peter Spencer. I noted another online forum which quotes from the judgement in the matter but gives the wrong year.

For the record the judgement is Spencer v NSW Minister for Climate Change, Environment and Water [2008] NSWSC 1059. While it does have the points quoted in its conclusion, which reads in part;

83 For the foregoing reasons, the remedies for judicial review of administrative action and for misleading and deceptive conduct or unconscionable conduct have not been made out. However, it is an extremely disheartening and sad occasion that a person, whose life and resources have been placed into rural property for the purposes of conducting a grazing and farming business, has been required to resort to this action.
84 Governments, not courts, make judgments about political policy relating to what, within reason, is for the benefit of the community. Mr Spencer does not dispute that the objects of the conservation policies adopted in the agreement between the Commonwealth and New South Wales are, at one level, for the benefit of the community. The Federal and State Governments have entered into a scheme to improve the environment and, in so doing, improve the lot of other rural and other proprietors. Nevertheless, they have done so at the expense of Mr Spencer.
85 While all members of society must accept that there will be restrictions on their activities for the “greater good of society”, when those restrictions prevent or prohibit a business activity that was hitherto legitimate, because of the area in which it is operating, and assistance is offered which does not fully compensate for the restrictions imposed, society is asking Mr Spencer, and people in his position, to pay for its benefit.

A more interesting decision was that made by (my old student politics mate) Justice Brereton in Spencer v Australian Capital Territory & Ors [2007] NSWSC 303. That judgement discusses the nature of the grant of title in land (paras 20-28) and the fact that any such title is always subject to the law, and that the Executive by contract or action (the grant of title) cannot bind the future acts of Parliament.

More pointedly Brereton J notes;

29 Fourthly, even if an acquisition of land were involved, there is no common law right to compensation where a person is deprived of property by a State law. A State parliament has the legislative power to deprive a person of property without just compensation, though by reason of Commonwealth Constitution, s 51(xxxi), the Commonwealth does not [Durham Holdings Pty Ltd v State of New South Wales (2001) 205 CLR 399; see also Jerusalem-Jaffa District Governor v Suleiman Murra [1926] AC 321, 328; Bone v Mothershaw, [25]-[26]]. Commonwealth Constitution s 51(xxxi) imposes no constraint upon the legislative powers of the States [Pye v Renshaw (1951) 84 CLR 58, 79]. While some state statutes – such as (NSW) Land Acquisition (Just Terms Compensation) Act 1991 – provide for compensation in the event of such an acquisition, there is no right to compensation in the event of an acquisition under a State law which does not fall within the terms of such a statute.

Spencer tries to argue that the passing of the relevant law was an agreement between the State and Commonwealth and thereby tries to find some grounds for enacting the Federal constitution acquisition of prperty laws. As nothing the Commonwealth does can make the State pass the law, there is no way the Commonwealth ever acquires the property.

What remains weird is that Spencer is insisting on a meeting with the Prime Minister where his concerns are all in relation to State law. e really should be seeking to talk to the Premier of NSW.

Finally, the last para of Justice Rothman's conclusion is relvant. It states;

86 Nothing in the foregoing is intended as a criticism of either the current State or current Federal Government. These schemes were implemented by previous Governments both Federal and State, with bipartisan support. Nevertheless, it is a most unfortunate aspect of the operation of the scheme that a person in Mr Spencer’s position is effectively denied proper compensation for the restrictions imposed upon him by a scheme implemented for the public good. As earlier stated, ultimately that is a matter for government.

As I noted in my original post, from 2001 and 2004 Spencer's barrister in those proceedings was a member of parliament representing one of the parties in government over the relevant time. It would be interesting to see if he ever contributed to debate (or made an adjournment motion speech) on the topic.

(Peter King was also senior student in my first year at St Paul's College).

Wednesday, January 06, 2010

Property Rights, hunger strikes and the law

Today Tonight had an item today about Peter Spencer, the farmer on hunger strike because he is protesting the laws that prohibit further land clearing.

The Today Tonight story said " But the farmers, who can no longer develop this land have received no compensation."

They mightn't have received it but they have been offered it. The Land reports that "An offer of more than $2 million was made to Mr Spencer, which he did not accept. Instead he sued the Government, and lost."

And let's be more clear, this is State legislation so the Commonwealth constitution doesn't come into play. But he is still trying to appeal to the High Court as he told Allan Jones;

AJ – Lets go back to Peter (Spencer). What exactly are you wanting. I know Peter King your lawyer is going to take this matter to the high court, but what are you wanting?

PS – First of all it’s day 16 of my hunger strike. We have been trying to get to court now – we’ve been in the high court a number of times trying to get heard and what they constantly do – they move to strike us out – so we can never present our evidence. Poor peter (King) has been trying now for almost 2 years, trying to get the case presented and hear the evidence – all the court does is look to see if we should be struck out or not.

It is fascinating to see that his lawyer is that ultimate loser Peter King, the man turfed out of Wentworth by Malcolm Turnbull, a man who was an MP in the Howard Government that did some of the things talked about in relation to Kyoto.

But most importantly everyone has got to understand that "property rights" do not extend to all residual property claims. Never have, never will. All land is sold subject to it being developed in accordance with changeable planning laws.

Spencer is a fraudulent claimant that is getting unjustified support from rednecks.

Why now?

Writing in the AFR (not online) both Laura Tingle and Dominic White speculate on the implications of the timing of Conroy's digital dividend green paper release. White writes;

In a sense, yesterday's announcement gives Telstra an extra incentive to a deal.

Tingle goes further saying;

..the announcement was widely interpreted in the telecommunications industry as being timed to maximise pressure on Telstra in its negotiations with the government over structural separation of its business.

I don't know who in the industry Tingle spoke to, but that is a long bow - nothing in that paper made the date of the spectrum release any sooner, nor is the amount to be released really in dispute.

If anything this paper was delayed, not brought forward, and nothing about the timing of the paper really will change the incentives on Telstra. Any NBN or separation deal needs to be concluded in months, the auction is still at least a year and a half away (the earliest possible would be two years before switch-off in June 2013).

There is however a linkage with the satellite plan for digital television. Conroy has to spend money for that, and to spend money he has to announce that he will really get the dividend. The Green Paper has been much delayed, but it looks like the delay was probably more to do with timing it with the satellite announcement.

More curiously is why either of them were announced when Conroy is actually on leave. My suspicion is the satellite announcement had been waiting for funding approval, but that it sits on the critical path of switch off.

It is a pity when EVERYTHING is seen through a filter of its impact on Telstra.

NOTE: This post has been amended from the original to more accurately reflect the comments of the journalists.


An interesting item by Stephen Bartholomeusz on a speech by Ben Bernanke on monetary policy and the housing bubble.

The question of whether to raise interest rates to stiffle bubbles was a key element in Galbraith's analysis of the Great Crash of 1929. He concluded as has almost everyone ever since that you can't use monetary policy to stiffle asset price bubbles in only part of the economy.

A bubble is really a case where herd pricing overtakes fundamentals pricing and relates only to one asset class. The best regulatory solutio is to include an automatic stabiliser in pridential rules that increases the risk weighting that needs to be applied to specific asset classes if the price of those assets is increasing faster than other economic measures.

But this does not resolve the Fed of blame. Keeping interest rates low is the way to the Japanese economic winter, not to avoiding it. Low rates become a disaster if you suffer a downturn while you have them - because you lose monetary policy as a tool.

That's also why the criticism by th coalition of Government policy that is maintaining fiscal stimulus while there is monetary tightening. The Government and RBA recognise the need to get interest rates back to a "normal level" sooner rather than later so they can be an effective tool.

The Fed's low rates should not be blamed for the bubble and the crash, they should be blamed for the trouble the US will have in getting out of this mess.

Greenspan personally can (and has) take the blame for an excessive belief in the self-correcting characteristic of markets that invaded US policy making.

Mobile phones and health

As one part of the US political system calls for more wireless internet, another is calling for health warnings on mobile phones. Obviously these are different parts of the system, but it does reflect the complexity of the modern world.

Many people want to draw the analogy between mobiles and cigarettes to find both a health issue and corporate deception in the marketing of the products. There are sufficient other examples like asbestos to raise one’s concerns. And there is a grand temptation for a politician to be the one who puts their name to some great act of salvation.

But even the best of intentions can be wrong. The story of William McBride is instructive. He was hailed as a hero for identifying the birth defects caused by thalidomide, but then of fraud when making similar claims about Debenox.

If the US politician were successful in getting a health warning put on mobile phones today it would probably read,

The surgeon-general advises that the weight of scientific opinion is that there are no health effects from the use of mobile phones.

Wireless broadband and competition

Yesterday Senator Conroy released his long promised Green Paper on the digital dividend. For the newbies the "digital dividend" is taken to be the spectrum previously reserved for broadcast services to be freed up by the conversion to digital broadcasting. One should note that there have already been two other "digital dividends" - the first in the provision of extra channels to consumers, the second in terms of an economic boon to equipment manufacturers, consultants and ad agencies to sell the conversion message. We also learnt yesterday of a fourth digital dividend - that for the satellite operators who will get to carry all the digital terrestrial channels.

The Green Paper doesn't reveal much new. The fact the Government is "targeting" 126MHz of spectrum as the dividend accords with the work genetrally in the ITU-WARC and APT on spectrum. The next AsiaPacific Telecommunity Wireless Forum (AWC-WF) in Japan is programmed to have a workshop on "Next Generation Mobile ommunications". (The membership of the APT is countries represented by Government Departments or regulatory bodies. However its Associate Members are more diverse and include operators and vendors. An interesting questio is how the European vendors decide which country they decide to be members of APT under.)

Meanwhile in the US the White House has called on regulators to make more spectrum available for wireless internet access. In a submission to the FCC the DoJ said;

Given the potential of wireless services to reach underserved areas and to provide an alternative to wireline broadband providers in other areas, the Commission's primary tool for promoting broadband competition should be freeing up spectrum.

This in part sees wireless delivered broadband as competition to fixed. But consumer groups have voiced concern;

Consumer groups, which have been critical of the FCC's approach on broadband, said the comments by Justice and the NTIA indicate the administration agrees there are not enough options for Internet users. "They are going out of their way to say competition is important and that there isn't enough and this is a new approach," said Mark Cooper, president of the Consumers Federation of America. "The FCC has been looking at spectrum as the great savior, but then they have to answer the question of what happens if spectrum gets captured by incumbent wireline companies."

In Australia the mobile industry is doing a valiant job of pushing the case for the need for additional spectrum as revealed in their various presentations staking claims for both the digital dividend and the 2.5 GHz bands. Both of these are already allocated in the US.

These thoughts of "inter-modal" competition are important (and will be discussed below). The issue I want to return to here is the question of whether - in the long run - competition in wireless delivered services is efficient. The first question to address is "what efficiency" as we may need to distinguish between static and dynamic efficiency (too long to explain here). But it isn't hard to demonstrate that in the long run one and only one wireless network is efficient - on the simple basis that every user can access all the available bandwidth, or more generally, there is less congestion for the same amount of spectrum. That is we probably need another NBN - this time a wireless NBN. This could be more relevant for the US - as there is not a lot of "unused" spectrum to be freed up. The issue might be about getting greater productive efficiency from the spectrum already released.

This brings us to the important question of inter-modal competition as opposed to competition between different networks in the same technology. This is the competition that does make sense where there is enough differentiation for both networks to have viable core business cases and they compete at the margins - wireless on mobility and fibre on speed. But it does introduce important questions about vertical integration in mobile networks and the potential anti-competitive consequences of allowing mobile network operators to start "bundling" FTTP services. The classic point will be where a mobile operator delivers the customer their telephony service on a picocell, so the customer's traffic is offloaded to the FTTP network while they are at home. Our policy makers and regulators will only think about this after it becomes a problem, not before.

Tuesday, January 05, 2010

Economics old and new

There are a number of ways of distinguishing between different economic traditions or positions. One way is to talk of orthodox versus heterodox economics. A more recent way is that of Cassidy in How Markets Fail and talk about utopian and reality economics.

An earlier distinction was between classical and institutional economics. I stumbled upon* an interesting paper yesterday. It is a 1957 review of "institutionalism" by Kenneth Boulding. He is reviewing the Institutionalism of Veblen, Commons and Mitchell. He makes a distinction between people who sit outside the mainstream (Kuhn's paradigms, Lakatos's reserach rogram or Galbraith's conventional wisdom) between challengers and dissenters. He says;

The challenger sets out to create a new orthodoxy; the dissenter cannot really bear the loss of something to dissent from, and hence would not really want to destroy that from which he dissents even if he could.

This in many ways sumarises some of the early institutionalists and their followers. I recall noting on the death of Galbraith the comment that "his sweeping ideas might have gained even greater traction had he developed disciples willing and able to prove them with mathematical models." That is he might have gained greater traction as a challenger rather than as a dissenter.

After undertaking his review he notes;

In a letter to me a few months ago, Professor Ayres accused me of having become an institutionalist. If a somewhat despairing concern for dynamics in theory (without losing a sense of the very real ac- complishments of statics); if a very strong concern for integration in the social sciences and for the bringing of contributions from psychology, sociology, and the biological sciences into the construction of better theories of individual behavior and social change; if a strong (if skeptical) interest and sympathy with empirical methods is enough to make me an institutionalist, then I gladly accept the title.

This article was published in 1957 (the year of my birth)! Those same three concerns - with dyanamics, with realitic agents and with empirical methods - constitute the ongoing core of the criticism of the orthodoxy.

Ayers himself comments on the article and takes issue with the Boulding description saying;

First, as I see it, the object of dissent is the conception of the market as the guiding mechanism of the economy or, more broadly, the conception of the economy as organized and guided by the market. It simply is not true that scarce resources are allocated among alternative uses by the market. The real determinant of whatever allocation occurs in any society is the organizational structure of that society-in short, its institutions. At most, the market only gives effect to prevailing institutions. By focusing attention on the market mechanism, economists have ignored the real allocational mechanism. Hence the hiatus between economics and the other social studies, all of which are concerned with various aspects of the institutional structure of society. Economics is more advanced than those others - in the wrong direction.

Second, what determines the relative scarcity or relative plentifulness of all resources is the state of the industrial arts. Ours is an industrial econ- omy. That is the paramount fact of the modern economic system; and the recognition of that fact is the most constructive achievement of institutionalists generally.

The latter point is an institutional one as the "state of the industrial arts" includes all the machinery of the modern corporation. Whether there is a distinction between the question of the primacy of markets or other institutions and the critique of market theory as ignoring dynamics, real decision making and data is a point for another day.

Boulding concludes by saying;

"In the work of the National Bureau, the Cowles Foundation, and the Survey Research Center; in cybernetics, operations research, general systems theory, organization theory, even in the humble contributions of a few economic theorists and in many other places, one detects -the ground swell of a "movement." If anybody wants to call this "neo- institutionalism," I shall only complain the word is too long."

In fact we wound up with both a neo-institutionalism and New Institutional Economics, though the first is grounded in property rights and law, and the latter in transaction cost theory. We also wound up with "behavioural economics" which focuses on the real agent question, and "evolutionary economics" which focusses on the dynamics.

The real worry is that - fifty years on - the orthodoxy is still the unrealistic market model.

* When I go to find a paper in a journal I usually look at the contents list of a few issues around the one I'm actually looking for. It is a useful way to stumble on stuff.

Is POTS dead?

In the over-used telco jargon "POTS" stands for Plain Old Telephone Service. We also call it the Publisc Switched Telephone Network (or PSTN). AT&T has described POTS in the US as ‘relics of a by-gone era’ and has called on the Federal Communications Commission (FCC) to set a date to scrap it.

As we understand that today it consists of a twisted pair of copper cable from the customer to a telephone exchange. That exchange is these days a big computer (an SPC switch) that is also known as a "Class 5" switch - the switches used for local access. What we get as a service is a simple "analogue" telephone.

AT&T isn't saying the telephone is dead, just the means of delivering it. They (as they have remorphed into being one of the former "baby bells") are complaning about the regulatory striictures requiring them to maintain their existing POTS networks when they want to invest in something else.

It is worth remembering that it was just the same desire by Telstra that started our NBN journey. Their 2005 proposal for a Fibre to the Node (FTTN) network was accompanied by replacing all their voice switches with "five paired soft switches". They share the concern with AT&T with the need to call "time" on the PSTN - with one regulatory officer famously telling a Senate Committee that it was five minutes to midnight for the copper network.

This is all a really important message for NBN Co, the Government, Telstra and Telstra's shareholders to understand. Building a nice shiny new FTTH access network for Telstra is doing them a favour - there is no need for special "compensation" for moving their customer base.

Monday, January 04, 2010

Cassandra or sage?

How can one ever tell the difference between a Cassandra and a sage? At any point in time there is a plethora of nay-sayers on any particular topic, and they are usually rubbished. They are typified as Cassandras - which is a funny misuse - because Cassandra was really a person who could foretell doom but not be believed, whereas the usage refers to people who always see the negative.

One favourite example of mine was during the phase where WorldCom convinced the world that the capacity of the internet was doubling ever hundred days. Andrew Odlyzko did a detailed study to show it wasn't, but every telco manager believed it was even though their own data didn't support the proposition.

The recent example came to me by reading a book called How Markets Fail: The logic of market calamities. It refers to a 2005 symposium held by the Federal Reserve Bank of Kansas City in 2005, and in particular a paper by Raghuram Rajan.

Rajan's paper is a perfect description of exactly how the liquidity crisis in American finance unfolded - given before the event. He neatly describes the two sources of instability as the incentive on fund managers to take risks that are concealed from ivestors and the incentive to herd with other fund managers on investment choices. The first is drive by the compensation scheme that rewards short term return. The second is driven by the need to perform as well as the next guy.

Ultimately these were the two underlying causes of the continued growth of the securitised mortgage market. Raja even describes in detail the nature of the heightened risk profile of banks and how a liquidity shock would spread like a ontagion through the system.

More interesting than Rajan's paper itself is the discussion that is also available on the symposium site - of great economic thinkers dismissing the argument. The dismissal comes down to little more than "but to fix this you want us to intervene in the market and the market is (almost) perfect so we won't.

The tragedy of what happened in 2007/08 is not that economists didn't expect it - it is that they were told and chose to ignore it.

That said, I'm not actually sure the solution necessarily works. If I have a system of very small "vibrating" agents and I connect them all together to dampen the overall vibration, I just make the size of the eventual instability greater. Would changing incentives and pridential requirements have stopped people adding more elements to the system or is it just adding yet more springs?

And more importantly how do you tell the difference btween a Rajan and all the other forecasters of doom?

The Price of Sport

I can't help but wonder about the economic rationale of sports administrators and how they set the admission price to a sports event. An article today claims ticket prices for cricket have gone up by 88% since 2001-02, which is claimed is twice the rate of inflation (I'd think it is possibly more than that).

How should a sport set the price for admission. You'd think that the profit maximising price was the one that filled every seat, but that is not necessarily the case. It depends on what is the price the last person is prepared to pay for their seat. In fact, standard monopoly analysis would tell you that the profit maximising point is probably (depending on the exact shape of the demand curve) at some point less than this. The correct answer also depends on the balance between the fixed costs for use of the stadium versus the variable costs.

Given that stadium owners also have their own challenge in designing their pricing schedule, the issue could be as much about ow they design their prices. They do typically charge a two part price of a fixed fee and then a variable fee. Sometimes the latter is based on a share of revenue which also becomes problematic.

There are, however, two other factors that mean the simple monopoly analysis doesn't apply. The first is that not all seats are the same, and that each person is sold a specific seat. That means it is possible to run a version of either first degree price discrimination or third degree price discrimination. These are fancy terms for charging each customer by their willingness to pay and differentiating the product respectively. The first happens to a degree when ou bargain on the price at a market or buying a car, the second is the practice of selling very similar products under three brand names.

For sports events the existence of different seat categories is a version of third degree price discrimination. The real question is whether this strategy is being properly employed. A quick survey of most venues shows that the vast bulk of tickets are sold at the highest price, with a lesser number at usually no more than two cheaper prices based on the idea that these are inferior seats. This strategy usually reflcts the stadium's policy, not the hirer's, and reflects the stadium's desire to believe that there is almost) "no such thing as a bad seat". This becomes quite ridiculous at times. For test cricket anything within 10 degrees of the wicket is far superior to something further around, though there is a small number of people who favour direct square on.

But ticket prices as offered are the same over the whole bloody bowl just based on elevation and cover. A profit maximising strategy would chage more for the good tickets and less for those that aren't.

It is even possible to pursue a first degree price discrimination strategy, by the use of auctions. With the modern process of online ticket sales it is not too hrd to build a system that would auction off the most desirable seats. This maximises total revenue.

The second factor is the importance of maximising return from all sources over time. Watching sport on television being played in an empty stadium is no fun at all. The crowd at the game is important to its enjoyment on television. Also, most sports are better understood once you have watched them live. Failure to draw a live audience detracts from the future revenue potential for the sport.

The same is true for venue operators. They need to structure their prices to create a incentive for the hirer to fill the stadium. That is a problem because a high fixed fee does that, but then becomes a disincentive for marginal events to hire the stadium. However, as hirers tend to use venues for a series of events rather than one by one, it is possible to design appropriate case-by-case pricing structures.

If anyone knows of any published studies on pricing for sports venues I'd love to know.