Saturday, December 31, 2011

The Iron Lady - Verdict

The Iron Lady is a disappointing film, but not for all the reasons outlined in John Huxley's column today.

It wasn't merely "revisionism", and the long-term effect of Thatcher on Britain is something on which rational intelligent informed people could disagree. Far from being toned down "Thatcherism" it demonstrated how her downfall within her own party was determined by th excesses to which she took that with the poll tax.

But the film itself spends too long on an interpolated latter life Thatcher, and nowhere near enough on her formative years. For that read Wikipedia.

Interestingly at the time we observed similarities between Malcolm Fraser and Margaret Thatcher, and what they had most in common was a political philosophy derived from a rejection of totalitarianism and all forms of state control. To understand either read Hayek's The Road to Surfdom. The difference is that Fraser never lost his classic "liberalism" whereas thatcher seems to have lost hers - and the difference could be in the difference between the patrician and the grocer's girl fighting class and sexism.

Novae Meridianae Demetae Dexter delenda est

Friday, December 09, 2011

To my loyal reader(s)

As reported in CommsDay today I will be commencing a gig as Temporary Special Adviser to Senator Conroy starting Monday.

Writing a blog is inconsistent with the role. While some of my esoteric pieces on the nature of religion, the global sweep of history and heterodox economics might be legitimate independent comment, those who know me well know I would find it hard not to stray.

It does leave some current unfinished business - not least was a post I was going to write about broadband pricing built on some recent analysis by Benoit Felten on the ways to manage bandwidth hogs.

So, we now adopt radio silence.

Novae Meridianae Demetae Dexter delenda est

Wednesday, December 07, 2011

The Corporation - Part 2

Nice little piece today from Ross Gittins on suggestions for a "relational business charter".

In part it goes to the same territory as my comments on the corporation. But only in part.

The question is more how would you get firm's to pursue the objectives given the myth of "maximising returns". The answer is more that the public policy debate needs a better understanding of the role of the firm and feel comfortable regulating them to achieve the wider objective.

Novae Meridianae Demetae Dexter delenda est

Heterodoxy Unbound

I have spent the last two days at the conference of the Australian Society of Heterodox Economists.

The conference re-established a core point - the heterodox are united by what they stand against rather than what they stand for.

What they stand against is the dominant paradigm of the neo-classical core of economics. But even how much they stand against this varies.

Universally they would argue that neo-classicism fails because it is a system that assumes that the economic system is inherently stable and that analysis begins with an economy in equilibrium. You would probably get general agreement on the proposition that the neo-classical core ignores money and hence largely ignores the finance system, yet the latter accounts for 20% of US economic activity.

Going further you might actually get them to agree that the weaknesses of neo-classicism begin with the three core assumptions of Methodological individualism, methodological instrumentalism and methodological equilibriation.

I approach the heterodox economists from a telco policy stance where I am astounded how the terms "efficiency" and "competition" get chanted with no understanding of the limitations the theory of neo-classicism itself would impose on them, let alone all the other potential fallacies.

An interesting part of the conference was a session proposing a mathematically modelled macro system including finance that was attacked for not having "micro-foundations". This ignores the good conversation that the Hicks co-option of Keynes to give it "micro-foundations" was the point at which Keynes became misunderstood. It also assumes that microeconomics itself is well founded and that the issues are merely to do with macro.

Steve Keen eloquently describes the failures of micro - indeed its internal inconsistency - in his Debunking Economics.

There was so much good in the conference - but the paper by Lynne Chester that distinguished Australia from being characterised as a Liberal Market-Based Economy was a stand-out. Working backward, Australia's relatively better performance than the true LMEs (US, UK even Canada) can be attributed to its different institutional structure - the Australian approach to wage fixation, highest bank capital adequacy requirements.

To put it another way, as economies rushed to implement market mechanisms to facilitate the structural adjustments necessary to respond to the oil supply shock - seen as stagflation - Australia did so in an effective way that created just enough flexibility without overshooting.

There were interesting discussions on central bank policy - with different views of whether central banks in setting official interest rates can or cannot effect employment. The latter view was accompanied by a call for more explicit specification of a "full employment" goal.

In the end the conference had a discussion about the future of heterodox economics - and ultimately the question is whether the goal is the overthrow of the orthodoxy or not. Some, like Keen, think the orthodoxy is so dangerous it needs to be overthrown. Others regard the orthodoxy as being too ingrained to be rebelled against (and one could argue their approach to Keynes is evidence of that - on which the best paper on Keynes was given by UTS's Rod O'Donnell but the paper doesn't appear to be available anywhere).

Yet others see the real benefit in the heterodox as being its pluralism - the fact that it permits economics to be looked at from different dimensions.

My own view is that we do need a true "paradigm shift" but that the shift needs to be to a pluralism - to the kind of world like mechanics in which Newton, quantum and relativistic mechanics can co-exist because the boundary conditions are well understood. The overall title of the new paradigm will be "complexity economics" because that is the consequence of putting institutions directly into models - they create feedback loops.

Finally there is the question of the relation between heterodox and political economy. The latter was the original term for the field when the focus was on how to make wealth. It was inherently prescriptive not merely descriptive. The term is now also used to explain how the neo-classical position operates to support the entrenched power positions (the definition of efficiency says that the preference of the person with the most endowments counts more).

For me this is the piece that simply blows up the cant that economics is a "positive science". If it were only such there would be no preference for economists in policy roles.

Anyhow - short summary - great conference and we all need to pay more hede to the heterodox and spurn the orthodox.

Novae Meridianae Demetae Dexter delenda est

Weird comments

I just moderated a weird comment on a post about the University of Sydney rebranding.

The comment made reference to a supposed "secret society" called the "Integralia." Further research has thrown up a short item in Honi Soit that provides good evidence that the existence of the society is an organised hoax.

The hoax is centred on its own wikispace and seems to be actively centred on a campaign to dis-empower the (already powereless) SRC.

I guess it is just Tony Abbott in the age of the Internet.

Novae Meridianae Demetae Dexter delenda est

Thursday, December 01, 2011

Update on Canada

Thanks to Catherine Middleton for alerting me that the story on easing foreign ownership restrictions in Canada is premature.

The relevant Minister did indicate that change is underway but will not be unveiled till 2012.

He interestingly is reported to have said "the government expects cellphone companies to offer rural Canadians the same services as those living in cities." Canada faces the same kind of geographic issues as Australia - though less urbanised. Vast thinly populated areas are extremely hard to provide metro like mobile coverage to. The only way such an expectation can be fulfilled is to put "must build" criteria on licences (as indeed the original Australian GSM licences had).

Middleton has provided a neat summary of telecommunications in Canada in the TJA. In it she notes a wireless market structure much like Australia's and that "99% of the population has access to 2G or 3G service
(which covers only 20% of the country's geographic area)" The Australian comparison is something like 98% of the population and 25% of the land mass (when a car kit is included)though real data is hard to obtain. (The landmass figure was provided in the Glasson report at P.125 and may well have increased since.)

The comparison between Australia and Canada is otherwise interesting. We have a well developed infrastructure strategy, and at least an attempt at a Digital Economy strategy.

Novae Meridianae Demetae Dexter delenda est

Wednesday, November 30, 2011

Kevin Rudd and the Right on the ALP

Launching yet another book on the current malaise of the ALP Kevin Rudd has provided his own analysis. Much of this is confused, and what he calls for is indistinct.

He starts by asserting a distinction between Labor good and the other side evil as;

A Party that has painted most of the nation’s history on a wide and expansive canvas; its economic reforms, its social innovation, the centrality of the environment, the place of indigenous Australians, as well as Australia’s independent place in the affairs of the world.

And just as we have painted this great canvas for the nation, the conservatives’ historical mission has been, wherever possible, to erase it.

Ours, a positive agenda of building the nation. Theirs, invariably a negative agenda to tear down what we have built up.

Because in the end, our creed is about the rights of the many – theirs being about the privileges of the few.

This is blatantly not true at the level of history - a good many of the reforms were introduced by conservative governments, and very few reforms have ever been torn down. Even the great reform of arbitration is only occassionally demolished by conservatives.

But secondly, the conservatives (Rudd's term - as previously discussed the non-Labor side are not always conservative) often just place a different emphasis on the order of redistributing wealth and growing it (to use Button's description that Rudd does). They regard this as a positive agenda of growth, and are especially wary of central planners.

Rudd is right to say that open debate lets the sunshine in. But the enemy is not the factions as such, there will always be groupings, but that the factions align around the way to exercise power not philosophy.

Rudd notes that there are three areas for reform;

It is time therefore for an open debate on the Party’s future. Its values. Its policies. And critically, its structure.

He places great store in "direct election." He doesn't go as far as the call Sam Dastyari is now making for membership election of the State Parliamentary Leader, though in a later interview he says he has an open mind on it.

People who favour this option should look to not only the recent disaster in the UK where they got the wrong brother, but read Alison Rogers The Natasha Factor and see the consequences of trying to impose on the Parliamentary Party a person other than the person they would choose to lead themselves.

Unfortunately on values Rudd is full of the same weak waffle as Gillard. He quotes his own Chifley Research speech.

The speeches are rendolent with talk of opportunity and fairness. At least Gillard's speech talked of the collective orientation of Labor, while Rudd saved this for his spray on neo-liberalism.

The backdrop of the current ALP malaise is a declining membership. However, this is not really a novel issue for the Labour Movement. In 1890 in Queensland there were 54 unions with 21,379 members, which by 1894 had declined to 9 unions and 780 members (McMullin The Light on the Hill P.26). Ten years after that the movement celebrated the (brief) first ever national Labor government in the world.

The history of the ALP is always fascinating reading, filled as it is with larger than life characters like Watson, Hughes, O'Malley, Scullin, Theodore, Lyons, Lang, McKell, Curtin, Chifley, Evatt, eddie Ward, Clyde Cameron, Whitlam, Cairns, Keating , Hawke, both John Cain's, both TJ Ryan's.

An enduring theme in that history has been the tension in the party between electoral politics designed to achieve power and a wider policy aim that variously goes under the name "socialism" but isn't recognisable as socialism in most other parts of the world. It is a very individualistic kind of socialism - a socialism founded more on the assumption of egalitarian values than of attacking the powerful "class".

These debates raged in the early years of the party, especially Federally. But the same debate can be identified as what - until the 1990s - divided Left and Right in NSW. The Left wanted purity of philosophical position, the Right any position that achieved power.

Labor has been at its best when this debate has been allowed to flourish, because it creates the idea of both short term and long term goals otherwise missing from politics. Labor has been at its worst when - like the Victorian ALP post split - it was able to be painted as just a socialist idealist party. Labor has been at its worst when - like NSW Labor over the last decade - it has imagined that politics is all about focus groups and mirroring back to people what you think they want.

The other part of Labor history is the role that early unionists and party members played in education - they took to their fellow workers the concept of unionism, of collective action, of the ideals behind socialism and the need to constrain capital. The rot seems to have set in once the movement could afford paid organisers, rather than merely to start paying existing organisers. Today an "organiser" in a union or the party is an organiser of numbers for internal battles and disputes - rather than an organiser focussed on education and motivating support.

The relationship between the political and the industrial wing of the Labour movement has always been tense. From the very earliest elections where Labor candidates were successful those representatives have found themselves caught between representing the interests of their electors and the interests of the unions. Different states resolved this in different ways - but NSW at least decided at itts conference in 1893 that the Trades and Labor Council that had formed the party would not control it (McMullin P.18). It was not until a 1916 NSW conference that the industrial wing gained control (McMullin P.105). Five years later the socialist objective was written into the platform.

Adding to the melting pot the ALP Right has issued its plan for party reform. It talks long on increasing democratisation, but gives twenty delegates on a new National Policy Forum to representatives of affiliated unions chosen by National Executive. When added to the parliamentarians and other officers they dwarf the twenty directly elected rank and file members.

Nothing else in the document offers much hope. More vague discussion of policy ideas, campaigning and engagement without any re-commitment to philosophy. More shadow democracy, and online tools (these exist already - they just don't achieve anything).

The Labour Movement's origins are entirely embedded in advancing the cause of the workers against those of capital. The origin of democracy was in freeing individuals from the arbitrary power and control of others. In the 21st century we suffer from the fact that too many "workers" don't identify themselves as such. A person running a small plumbing business, an owner-operator truckie, an IT contractor, a salaried professional are all workers. They are not capitalists like the old pastoralists. But capital has also changed - the interests of capital are now advanced by a managerial class not by real business owners.

Labor's modern view of socialisation should not be state owned enterprises - we have seen how these enterprises degenerate into the perception that state ownership's purpose is to over reward the worker rather than to constrain market power. Labor's modern view of socialisation needs to be grounded in the idea that no one in society should be able to acquire and exert power over others - be that physical, coercive or economic.

True reform of the ALP can only begin by removing affiliated unions from having any formal role in the governance of the party. True reform of the ALP needs to start by developing a better narrative of what it stands for. True reform of the ALP needs to embrace a return to the struggle to balance electoral success and long term goals, and to embrace the role of the party to educate not just respond.

So far none of the formal proposals from right and left, or the thought bubbles of various people in leadership roles amounts to anything more than mere posturing.

Novae Meridianae Demetae Dexter delenda est

Tuesday, November 29, 2011

The Corporation

In my many and varied writings there is one issue that is central, and that I very seldom discuss directly. That issue is an understanding of the Corporation as an economic and political institution. My understanding of the Corporation informs my overall "socialist" bent - wherein I read the "socialisation of the means of production etc" to not mean social ownership but directed to social not private goals. (see note)

As such I was pleased to see a short item by Lynn Stout in today's SMH. The piece says that it is time to recognise shareholder value as an ideology, not as a legal requirement. She notes that focussing on shareholder value often translates into share price and how focussing on share price may not really be in the interests of "shareholders" once they as a class are properly understood.

All this will be anathema to a modern business executive, especially one who is trained by a leading business school or one who reports to a Board of Directors that responds more to the commentary of analysts than the advice of managers.

Stout's academic writing however addresses much of the history.

In her paper Why we should stop teaching Dodge vs Ford she outlines the US case in which the statement about the purposes of the firm came to prominence. It said;

There should be no confusion ….A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of the directors is to be exercised in the choice of means to attain that end, and does not extend to … other purposes.

She outlines three reasons why this statement should not be relied on. First it is an old case, second it was not a particularly expert court that ruled that way, and thirdly the statement in fact played no part in the actual judgement. It was what the lay would call commentary. Dodge vs Ford was not really a case of directors responsibility to shareholders, but about majority shareholders suppressing minority rights.

Stout goes on with some other reasons why it is not good law, but from my point of view the issue is that it is simply not good reasoning.

The history of corporations certainly provides plenty of evidence that the policy intent of enabling incorporation is anything but maximising profit. From the observation of Adam Smith that;

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Governments did not permit individuals to work together in creating "firms."

However, certain activities were identified as entailing too much risk or too high a capital sum, or both, to be conducted other than through the combined capital of many people. So the trading companies were chartered, as were corporations to undertake municipal works. In this early era where a corporation had to be explicitly chartered the first requirement was to demonstrate a purpose that could not be fulfilled other than through a corporation.

And today no corporation is formed by someone going to investors saying "invest in this corporation so I can maximise shareholder value." They go to the market saying "I have identified this opportunity because there is a need we can fulfill, in doing so I need your money and I will provide this return to you."

By both history and formation a business organisation is carried on primarily for the purpose outlined in its "prospectus".

John Kay in his book Obliquity has emphasised that the best way to some goals is to not work on them directly. To make money for shareholders focus on meeting customer needs, not on making money. In meeting customer needs focus on doing it efficiently, not on making money.

In her Bad or Not-So-Bad Arguments for Shareholder Primacy Stout relays how long running the debate about shareholder value has been. In doing so she notes the protagonist for the view that firms exist to make money for shareholders was one of Berle & Means who had concluded in The Modern Corporation and Private Property that this was not how executives actually acted. Thus was born agency theory in corporate governance and the trend that has seen ever greater efforts to "align the interests of the executive with shareholders" which has seen its practical consequence of ever bigger remuneration to executives - remuneration that is at best only notionally related to shareholder return.

Stout in her writing generally raises the concern that belief in "shareholder value" extends to "shareholder primacy" and then the conclusions from that, like shareholder rights to call EGMs to vote for the remuneration report etc. Stout is generally concerned that these are policy proposals based on misconceived views of the firm.

Surprisingly, I find myself in agreement. (Note Stout also does some great work separately analysing the Efficient Capital Market Hypothesis and why in the premise of heterogeneous investment preferences you will get under-pricing of assets.)

Much else follows once you dismiss the inaccurate representation of the purpose of the firm. Another consequence is an increase in the transparency of the true purpose of the firm - that is active engagement with investors on an ongoing basis on strategy.

Finally, those on the socialist side need to reject the language adopted by Friedman (see the reference by Stout in the Ford & Dodge) piece. Firms are collusive acts of capital, a collusion authorised by the state because of the value that can be obtained by society. That authorisation entails obligations. That collusion creates the right and need for other economic agents to also be allowed to "collude" in their dealings.

Note: It is sometimes unfashionable to refer to "society." I make no apologies.

The film The Iron Lady about Maggie Thatcher will soon be released. She, with Ronald Reagan, epitomises the rise of the "cult of the individual" ... a cult among whose thought leaders was Ayn Rand. Thatcher expressed the view that there is no such thing as society. (full quote below)

Her views really went further and entailed the mutual obligation element, but overall suppresses the reality that humans are social animals. We are "designed" to live in groups, we act co-operatively by nature and we value fairness.

I think we have gone through a period when too many children and people have been given to understand "I have a problem, it is the Government's job to cope with it!" or "I have a problem, I will go and get a grant to cope with it!" "I am homeless, the Government must house me!" and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first. It is our duty to look after ourselves and then also to help look after our neighbour and life is a reciprocal business and people have got the entitlements too much in mind without the obligations.

Novae Meridianae Demetae Dexter delenda est

Canada and mobiles/wireless

An interesting report today that the Canadian Government is considering reducing the restrictions on foreign ownership of telcos.

The article neatly points out how the current ownership limit would impede new entrants into the market. The discussion has some relevance to the yet to be undertaken (or revealed) analysis of competition limits to apply to the Australian Digital Dividend spectrum auction.

I don't know the Canadian market well enough to comment, but from the Australian market perspective "smaller providers" are no longer a reasonable goal. What works is national licences, and few of them.

It is also hard to believe any market still has a foreign ownership restriction on mobile licences. The trend is even towards reducing that requirement on fixed licences.

Novae Meridianae Demetae Dexter delenda est

Friday, November 25, 2011

The NBN and the phone service

Fascinating item in the AFR today (behind paywall) in which the new chief executive of Primus rants about the need for the NBN to do more for phone service.

According to this CEO the NBN only provides for one telephone and to get the existing telephones to work requires "extensive rewiring". That to me is complete and utter nonsense. From the ATA part of the NTU the customer gets exactly the same kind of socket as they get on their existing phones. Connect that up to another socket on the existing wiring - and the phone equivalent of double adaptors are readily available - and all the existing phones will - or at least should - work.

I'd be pleased if some enterprising telecommunications technical bod would tell me if I'm wrong - but I'm pretty sure I'm not.

His second complaint is the $24 access price to get the first service which provides the voice capability and 12/1 of data. He moans that the price needs to be like the "$5" he can get from another provider. Well no - as a non-access network owning provider he can provide voice in one of two ways - buying a ULL and adding voice or buying the Telstra wholesale line rental. The prices for these can be found in the ACCC's final Access Determination. These are $16 per month for the ULL and $22.10 for wholesale line rental. The NBN service includes the ATA which is not included in the ULL price. The NBN price does not result in any additional charges for local calls as occurs for WLR, in addition the provider will receive the PSTN TA charges that currently go to Telstra.

It is a pity that CEOs go out and say these types of things. There is nothing to be gained for the industry by projecting an industry hostility to the NBN - particularly when the statements just don't seem to be accurate.

PS For once I just can't be bothered sending a letter to the AFR. It is about time NBN Co felt mature enough to respond itself.

Novae Meridianae Demetae Dexter delenda est

Wednesday, November 23, 2011

Australia Post and the Digital Economy UPDATED

Since Maha Krishnapillai announced that he was leaving Optus everyone has been wondering "where is he going?" We were only told it was a commercial role in a non-competing organisation. Today it has been revealed in CommsDay that he is off to Australia Post.

It was an interesting way to find out - given that the only other news coverage in the AFR and The Register seems to also have been sourced from Comms Day.

The only direct quote from Maha in the story is;

I’m genuinely excited by the transformation opportunity at Australia Post, and the opportunity as part of that in terms of their communications products and services strategy. The thing that really appealed was that [Australia Post CEO] Ahmed Fahour is a really interesting character.

I know the opportunity sounds counter-intuitive to some, because that’s what a lot of people have said to me… ‘are you going back to the public service, is this going back to PMG’? But it’s actually none of those things. It’s a pure commercial role, and that’s what appeals… [to] explore the potential for Australia Post in communications products.

So all we are really told is that the role is "to explore the potential for Australia Post in communications products", to which Maha's new colleagues might say they already do "communications" and what you mean is "telecommunications".

Comms Day goes on to speculate that Post's new strategy will encompass three areas - but how much of this is speculation versus information from Maha is hard to know. But I suggest that if Post was a listed company the CEO and company secretary would be having conniptions right now about the way strategy was being briefed to the market. I suspect (as I mention further below) that the shareholding Ministers in Australia Post might be having them anyway.

But let's assume for a moment that CommsDay is accurately describing the strategy. They say it has three elements;

1. Develop strengths in e-commerce….linked to parcel delivery.
2. Adding to the financial service and banking portfolio.
3. Opportunity to become an SP leveraging “massive distribution, trusted brand, logistics advantages and easy-to-use payment systems”

The first two of these are really better described as Digital Economy initiatives - they are how Post needs to respond to the overall economic transformation that is spurred by the fourth phase (telegraph, telephone, network computing, broadband IP) of the communications revolution. (also see below on history).

I've actually heard from elsewhere that there already is an Australia Post manager who has worked on the model for leveraging posts parcels business and looking for an executive sponsor. Hopefully he and Maha will hook up (and the person who told me that reads this blog so hopefully he'll make sure it happens).

The second area is a bit vague, and there are plenty of reasons why Post should not build its own bank - just as there were when the idea was raised in 1910. The Kiwi post office would also have a view. More importantly why cut off all that agency revenue just to try to make some margin between borrowing and lending.

Australia Post is an interesting case for the whole strategy thing - do you diversify or do you stick to your knitting. I think I've written previously about the strategy bit that said "the railways thought they were in the train business but they are in the transport business" - this is the stuff Telstra has grappled with, are they in the telco biz or the comms biz or in the converged "media comms biz".

Post is in the collecting and delivering business. To do that they've had to have shopfronts. They have leveraged the shopfronts to generate agency fee revenue and to sell products to create demand for the collecting and delivering business - presents, stationary etc. These activities bear some of the fixed and common costs incurred in running stores. The agency business in part grew by accident - as the collection of telephone bill payment went from core PMG business to agency Australia Post business.

There is a great deal of value that AP can add to e-commerce by providing an identification certification business - that could extend to providing to individuals encoded USB sticks that could be used by Centrelink recipients to establish their online credentials.

However it is in the area of actually getting into comms and perhaps seriously considering being a retail Service Provider of the NBN that is a worry. There are plenty of consu;tants (notably Ovum and Venture) promoting the idea of non-telcos getting into the NBN service biz. They all cite Tesco in the UK as a model. But Tesco is a service brand, post is a delivery brand. The bigger value for AP is getting large scale delivery business as part of NBN Co - creating drop points for collection of hardware by installers for example, or guaranteeing delivery of the hardware through offering the kind of "where is my package" service.

But the bigger issue is that AP has two shareholding Ministers who happen to be the shareholding Ministers of NBN Co. To allow AP to get into the RSP business would blow the whole separation plan out of the water.

But, all we really have is CommsDay's speculation that this might be the AP strategy. My sense is that it won't be for long.

(see below)

A history note:

Both Maha and Grahame Lynch in CommsDay touched on the history note of the fact that as the PMG telecoms and post were integrated and whether this is a logical step. They get a bit of the history wrong.

The PMG that was formed in 1901 was simply the amalgamation of pre-existing state based PMGs that existed prior to Federation. The model of an integrated post - telegraph - telephone behemoth dates from the middle of the preceding century. How the PTT model evolved in the European countries and their colonies varies from place to place - but Eli Noam in Telecommunications in Europe proposes the position that revenue from the monopoly "royal mail" in all European states was one source of revenue that was not subject to Parliamentary approval. Preservation of that monopoly was paramount and extending the post office role to the telegraph and then telephone was a process of preserving the monopoly and its rents.

In the Australian context the newly Federated Post Office did not operate at all well in its initial years (a position that in part was built on interstate rivalries that remained in Telecom until the Divisionalisation move of 1987). This resulted in a Royal Commission that reported in 1910. The report and its record of evidence make interesting reading, not least because the issue faced was that the PMG was restricted to be able to spend only as much on capital as it could raise from revenue in each year - there were no "taxpayers funds" employed.

The other was that it was the postal service that was profitable. Indeed within the two loss making services the Director-General of the Service Robert Townley Scott revealed in his evidence;

Q:Then the telegraph and telephone systems are non-payable?
A:I do not think the telephones are non-payable. Sometimes a very considerable profit is made on the lines run on the condenser system.
Q: Generally speaking, the telephone system is a payable one?
A: Yes, with regard to the trunk lines and condenser system.
Q: what is to stop the Department from further reducing the telephone rates?
A: I think that would be a mistaken policy. Take a case in point. One can speak by telephone over a distance for 2 [pennies] for three minutes, which would cost one [shilling = 12 pennies] by telegram.
(Paragraphs 358-360 Interestingly the evidence at this point goes into Scott's proposal for a Post Office Savings Bank).

The Post Office never received much taxpayer money, and from 1959 on it only received Government funds as loans. When the Post Office was split into Australia Post and Telecom Australia in 1975 a basis of it was that the former was a labour intensive business while the latter was a capital intensive one.

{This para has been amended} Grahame Lynch writes that "international services were excluded" when telecom and post were formed in 1975. This construction could give the impression that the international services were part of the PMG at that time. Instead the history of overseas telecommunications is far richer. OTC was formed in 1946 when the previously privately held assets of AWA and Cable & Wireless were nationalised. It was a recommendation of the Vernon Commission into the Post Office in 1974 that OTC be merged with Telecom, but OTC saw off that threat. The story of the final merger of Telecom and OTC has really only been half told - Professor Steve Burdon at UTS threatens to write a tell all book one day.

Finally the carrying value - that is cumulative unrecovered funds - invested in Telstra before it was privatised for some $60B was precisely zero.

For avoidance of doubt, I think CommsDay did a brilliant job in getting this scoop. I have referred to the AP strategy as being "speculation" on CommsDay's part since they preceded it "CommsDay understands". However, I assume, like every other reader would, that CommsDay actually got this from Maha. I do think that that is a strange way for AP to brief its strategy to the media, and I do wonder what the shareholding Ministers would think of AP being an RSP.

Also the history note says that CommsDay gets the history "wrong". While there was one specific error (since amended) the import of this note is that the relevant history is far more interesting and richer than the potted version provided by CommsDay would suggest.

Novae Meridianae Demetae Dexter delenda est

Wednesday, November 16, 2011

The Digital Economy, Globalisation and Change

I gave this paper at CPRF 2011 last week on Competition Policy for the Digital Economy. My core thesis was that policy makers refer to "competition" as a policy goal with little understanding, and what understanding they do have needs to change.

The paper traces the evolution of "competition policy" from its anti-monopolisation US origins, through the regulatory state of the post-Depression (and post-War) eras ending with the pro-market orientation of the 80s. I note that these three phases were triggered by economic events - the rise of economies of scale and scope in the late 19th century, the depression and the oil price shock of the 70s.

I then outline a conception of the Digital Economy which regards it as the transformation that flows from a General Purpose Technology. I explain how that impacts economic organisation and indicate ways competition policy needs to change.

I found a nice connection between it and a column by Ross Gittins today which the SMH titled Change is workers' only certainty, but Chris Wallace at Breakfast Politics called linked to as Why Qantas is a warning to us all.

Gittins places his piece with this introduction;

The greatest force driving structural change is technological advance: the invention of better ways of doing things, new things to do and countless labour-saving machines. Globalisation has been driven partly by government policy, but mainly by the information and communications technology revolution, which has hugely increased the speed and reduced the cost at which information, money and people move around the world. ....

The trouble with structural change, of course, is that the benefits go to the customers - new products, wider choice, lower prices - while all the problems go to the people working in the disrupted industries.

He goes on to (correctly I think) intimate that the problem at Qantas is the need to change created by the marketplace changes. He notes that this necessarily involves changes affecting workers.

He then discusses the transition from an industrial relations system dominated by a central "arbiter" to one based on negotiation and agreed outcome. He picks up the theme that some have suggested that unions should only be concerned with pay, writing,

The goal was a new era of reduced industrial disruption as the parties recognised the great extent of their common interests and put less emphasis on their (undoubted) conflicting interests.

Right on. So I don't think banning debate about management decisions is the smart way to go. That would mean the law advantaging one side, giving managers permission to ride roughshod over the interests and even the opinions of their employees.

Half the trouble at Qantas is the employees' failure to recognise how the game has changed for their company, robbing them of their former bargaining power. The other half is the arrogance of management in their resort to ''managerial prerogative'', in their failure to explain and debate the new realities with their staff.

The subject of technological change is not a new one - maybe its time we dusted off the reports from the 1980s which dealt simply with "computers" and technological change. And at the same time be mindful of the other comments he made (which I previously posted about) that labour markets are of their very nature heavily regulated.

What we need is the ability for management to engage staff in the conversation.

Corporations too often rely upon the rules of the equities markets to argue a need for secrecy in their strategic development. I have a general feeling that management and boards use these rules as ways to deny shareholders information rather than the reverse.

The real question is, is there something in the way we model "governance" that results in secrecy and impedes the ability to constructively engage with employees.

Novae Meridianae Demetae Dexter delenda est

Monday, November 14, 2011

Regulation or Deregulation

I reckon everyone who talks about deregulation of the Labor market should read this Ross Gittins piece.

As he says;

Here's the point: the labour market has always been highly regulated. It remained highly regulated under Work Choices and it's still highly regulated under Fair Work. It's always likely to stay highly regulated for a simple reason: unlike all other markets, the labour market deals with human beings rather than the exchange of inanimate objects.

As a matter of politics, common humanity and common sense, the treatment of people in the labour market will always be carefully regulated. We are, after all, running the economy for the benefit of people.

What changes from time to time is not so much the degree of regulation as the objectives of that regulation. There's a fundamental imbalance of bargaining power between an individual worker and even the smallest employer.

The scope of regulation is about how that imbalance is addressed. The way "the market" deals with it is actually that workers have an incentive to collectively bargain.

The Australian innovation was the concept of conciliation and arbitration as an alternative to simple clashes of collective power.

Novae Meridianae Demetae Dexter delenda est

Sunday, November 13, 2011

PM's Armistice Day Address

I had the opportunity to attend the Armistice Day ceremony at the Australian War Memorial on Friday (at the same time as my number two daughter was on a battlefields tour where her great grandfather Walder fought in WWI).

I finalised the iTnews column by e-mail from my phone just before it started - and would like to think that one day I could write a speech as good as the one the PM delivered.

Unfotunately it appears on the PM's website in the format used to write a speech to be read, so I reproduce it below using paragraphs of more than one sentence....

Your Excellencies

Mr Acting Chief Justice, Ministerial and parliamentary colleagues, Member of the Australian Defence Force past and present, Custodians of the Australian War Memorial,

Friends of peace all,

On May 5 this year, a frail old man died in Perth, the sort of death that happens in nursing homes every day.

But this was no ordinary loss. With the passing of Claude Choules, the final link to World War One has been broken.

Around 70 million people fought in that dreadful conflict. Mr Choules was the last; a mighty bond, worn down to a single slender thread, itself now broken. An age ended; its sole surviving voice forever mute.

Claude Choules was there on this day, 93 years ago. The day the guns fell silent. The day that peace began.

But if November 11 was the end of war, it was the end of innocence too. Never again the ‘laughter of unclouded years’.

The armistice forged that autumn morning was a bitter, partial peace. But then again, it always is, because human nature is weak and the summons to war lies never far away.

That is how this memorial to one war came to be opened in the midst of another. And how hardly a day has passed since 1941 when Australians have not been abroad on active service, half of that time in combat operations.

The truth is we are a good nation in an imperfect world.

A people of peace so often called to war. Fighting other nations; but really fighting deeper foes - tyranny, injustice, persecution and greed. Never for national gain; never for purposes other than what we judged to be right.

Surveying these walls and the immense sadness of 102,000 names written on them, it is right to conclude that our nation – and especially the young people of our nation – have always accepted the cost and burden of war, as seen in Afghanistan this very day.

If we pay that price willingly, we never pay it lightly; because war is a profound responsibility for any nation to undertake.

Is it not surprising that men like Claude Choules and Charlie Mance who saw the worst of war became the most fervent sons of peace, and so often shunned observances such as this. They knew what we only see ‘through a glass darkly’.

Privy to the joyless irony of conflict; that the aim of war is peace – and the price of peace is all too often war. An unbearable paradox witnessed by endless rows of pale, identical gravestones, and mud-soaked fields that even now still yield up their dead.

There are many tributes to war – memorials, wreaths, poems and songs. All of them reaching for the un-sayable; all of them falling necessarily short.

Perhaps the only memorial that fully touches the enormity of war is silence.

It was in silence that so many of our veterans wrapped themselves when they came back. Having seen and done things too awful to ever bring into the sanctity of their own homes; or to share with people who could never understand the things of which there is nothing left to be said. Things for which words and symbols fail, and contemplation remains our best and only gift.

In the wisdom and dignity of our silence, therefore, let us not forget.

It is little enough to ask of us who gained so much, from those who gave so much. So in our still and grateful hearts, let there be only silence. That on this day, and on every day, in every month and season, we will remember them.

Lest We Forget.

Digital Dividend Auction

My column for iTnews this week is based on the ACMA's Digital Dividend Spectrum Tune-Up.

In it I use some data put up by DBCDE to speculate on the values that will be raised at auction. You might recall that I estimated the $A equivalent for the French 2.5 GHz auction at $458M. I also noted the Italian 700MHz equivalent raised abiout 2 and a half times as much.

These are consistent with the ranges I've quoted in my article - of low, middle and high estimates for the 700 MHz of 594, 990, and 2970 million dollars, and for the 2.5 GHz of 308, 870, and 1540 million dollars.

It was a very very good spectrum tune-up.

Novae Meridianae Demetae Dexter delenda est

Thursday, November 03, 2011

The Future with High Speed Broadband

The Commerce Commission in New Zealand is an interesting regulator. They have an "inquiring mind" and like to think about the future and what the emerging issues could be.

This contrasts with so much of Australia's policy and regulatory bodies who merely react to events.

The ComCom's latest foray is their study of High Speed Broadband Services: Demand side studies

Commissioner Ross Patterson has made a little video spruiking the conference they are having as part of it.

The conference website is having a few dramas today, but I'm assured it will be fixed tomorrow.

They have some great international speakers lined up and what I consider to be a pretty reliable facilitator/chair (moi!!!!).

Novae Meridianae Demetae Dexter delenda est

Wednesday, November 02, 2011

More on Qantas

As accusations flow about when people were told of the Qantas lock-out it is pretty clear that Joyce was so obsessed with the security risk that he never really made it clear to the Government. Ultimately he was speaking in code.

But Joe Hockey reckons;

(Qantas has) been saying it around parliament house for the last few weeks. They've been saying it privately and publicly around parliament house for weeks.

Perhaps there might be something based on this fact you'd have found about Qantas PR and Govt Relations Head Olivia Wirth if you'd followed the links in my earlier post.

A veteran of the Australian Tourist Commission and its successor, Tourism Australia, Ms Wirth was also an adviser to former tourism minister Joe Hockey and worked for the industry lobby group Tourism Council Australia.

Meanwhile Qantas is reported to have gone inot "damage control mode" as it tries to patch up strained relations with Gillard and Albanese. Ms Wirth was reported to have made a "flying visit to Canberra" to "repair a relationship which insiders now describe as toxic."

This is a prelude to an appearance Alan Joyce is going to make before a Senate committee on Friday. I would like to be a fly on the wall of the preparation session for that appearance. Only the very rare CEO can pull off the kind of beligerent performance Packer made before the print media inquiry.

My own thoughts would be that Joyce should try to drown the committee in facts about the global international air services market. He should take the approach that says he is willing to hear from anybody alternative strategies to save Qantas from the oblivion it faces; to remind them of the fate of other iconic airlines (Ansett domestically, Pan-Am globally).

More importantly he should not make Industrial Relations out to be the core issue - the core issue is the future of the airline, that future is in the national interest not just shareholders interest. The IR policy settings are just part of the "external environment" within which management has to make its decisions. The decision on the weekend was made to bring about an end to the dispute, and the lock-out was necessitated by the safety concerns. Others may have different views, but that was their view as the operators of the airline. (Emphasise more concerned about risks from stress than deliberate sabotage).

Finally note that thought they WERE flagging the possibility of the action they took, but were insufficiently clear in communicating it because they didn't want to inspire the fear. Could go as far as suggesting concerned that the Govt was too close to the unions in the matter.

But first and foremost - go hire a lobbyist!!!!!!! They need the "back-channel".

Novae Meridianae Demetae Dexter delenda est

Monday, October 31, 2011

Australia's Shrinking ICT Policy Engagement

It is really quite hard to come to grips with exactly what has been happening in the ICT lobbying space over recent years. Australia had three groups with a policy focus in the ICT space.

The user side was represented by the Australian Telecommunications Users Group (ATUG) which this year celebrated its 3oth anniversary by closing its doors. The charitable interpretation was that the organisation had achieved its objective, as competition in telecommunications was secure and indeed the structural separation of Telstra (a long held ATUG goal) was occurring.

At the time I questioned the decision noting that ATUG had been trying to create a role as the Digital Economy Stakeholders Forum. I noted that the AIIA has rebranded itself as The Voice of the Digital Economy, and this organisation was even touted as a possible merger partner for ATUG.

Now we hear that the Australian Information Industries Association (AIIA) is halving its head count and declining a role to promote our ICT industry. There are no advices of these on the AIIA website, though both the AIIA CEO and Chair are quoted in the stories.

The CEO maintains there has been no decline in membership, but the section of the website that identifies members seems to be not accessible today. However it was noted that the AIIA board consists of ten reps of multinationals and only six from domestic firms.

Finally the Internet Industry Association has been undergoing turmoil and has appointed as interim CEO the same person who performed the close down role at ATUG.

In the case of both ATUG and the IIA it is known that a factor was the decision of Telstra to rationalise the associations it participated in. It is unclear whether Telstra has also withdrawn from the AIIA.

Outside of Telstra support comes from multinational ICT firms that must increasingly wonder about the value of involvement in Australian policy work, especially as the Australian government seems to have downgraded its own direct involvement in this work.

There is a case for "middle power diplomacy" for Australia in global ICT policy. But the Government has to recognise there is no "industry" to speak of that is uniquely Australian to take up these issues.

It is also becoming apparent that the decision of the ALP to remove the IT component of policy from the Department of Communications etc has led to a significant reduction in policy interest.

Novae Meridianae Demetae Dexter delenda est

NBN Confusion

The coalition doesn't like the NBN - we know that. Malcolm Turnbull, Paul Fletcher and Barnaby Joyce go on about it.

But coalition backbenchers don't like the NBN - because residents don't know when they are getting it. Government backbenchers have also been known to complain about the inadequate roll-out schedule.

The public in general really wonders if the coalition can "stop the NBN." There is no evidence Telstra would have an appetite for negotiating a different deal. There is no evidence a structurally separated copper business could raise any capital in private markets for an FTTN upgrade.

But more significantly, like climate change, everyone wonders whether the coalition could get any enabling legislation through.

The biggest difference between Paul Keating winning the 1993 election against Fightback and Beazley losing the 98 election against the GST was that Keating promised to support ANY Fightback legislation if he lost. Beazley promised to oppose the GST. The people voted strategically in 98 to keep Howard and against the GST - which worked until Meg Lees ratted.

The ALP should go to the next election saying it will oppose legislation to change the carbon tax, because the coalition doesn't believe in any action. They should however say they will support any change the coalition wants to make on broadband policy because Mr Abbott and Mr Turnbull claim to be supportive of the intent.

That would make the issue of cancelling the NBN very very real for many people....maybe enough to make a difference.

Novae Meridianae Demetae Dexter delenda est

On patents

Stumbled upon this blurb for a book on patents. looks to be worth a read if I had time......

Novae Meridianae Demetae Dexter delenda est

Queensland and Northern Territory Air Services

The history of commercial aviation in Australia prior to the 1980s is one of the many subjects on which I have very little knowledge.

Somehow leading up to that point a private sector domestic airline had morphed into a government owned international carrier. Clearly delineated were two domestic inter-capital carriers, one Government owned the other privately (TAA and Ansett). Finally there were a host of regional airlines.

The domestic airlines were tightly regulated - the purpose being the usual one of cross-subsidy. To guarantee flights everywhere, entry to the business was constrained to limit "cherry-picking" on the popular routes. International airlines were tightly regulated globally with most countries desperate to ensure air services to their country and thus regulating access to favour their "flag carrier." (Note that there was actually a major communications link here as the Government sponsorship of air services was linked to mail carriage services).

Australian aviation policy was one of the first areas to be subject to the 1980s and 90s wave of "competition reforms". In this they were following the work of Alfred Kahn in the great work The Economics of Regulation. Details of the reforms in Australia can be found in S.G.Corones Competition policy and international trade in air transport and telecommunications services (first published in The World Economy) gives a good theoretical outline of the issues as they apply to international services.

The primary consequence of the deregulatory thrust was the facilitation of a series of mergers that resulted in operators involved in all the markets. The biggest of these was the merger of Australian (the rebadged TAA) with Qantas. But most of the regional airlines were merged into either Qantas or Ansett as well.

The first consequence of deregulation was the collapse of Ansett, an event that occurred through a whole host of reasons, but mostly through a poorly thought out strategy by Air New Zealand to obtain the same kind of structure as Qantas. Two attempted entries under the brand Compass had put some pressure on both airlines, but both Compass attempts collapsed.

Following the Ansett collapse, Richard Branson's Virgin brand entered the Australian market, with some success. Qantas responded by creating an off brand product called Jetstar that sat at a price point below Virgin, and cleverly was structured to obtain different employment conditions. Virgin has recently responded to Jetstar and Tiger by moving itself slightly up in the quality/price stakes.

The simple facts are that the domestic operations of Qantas are still trading profitably. The reality is that we still have much the same market structure in domestic aviation as we had before, however, rather than an duopoly mimicking each other we have an oligopoly that displays the characteristics of "monopolistic competition" of differentiating themselves to different markets. This is in part managed by differentiation of service - like whether the meal is included with a ticket, etc.

The biggest development has been the application of price discrimination which entails having different ticket classes with different restrictions on changes, but more importantly different prices for each ticket type depending on the actual flight time and when it was booked. This yield management, by filling planes, has been responsible for the lower cost per seat kilometre passed on to customers.

That is, the benefits to the flying public have mostly been from the application of ICT, not the consequence of competition policy. The policy question is whether the market could have been "reregulated" in a different way to encourage these investments without the destructive consequences of the Ansett collapse and the two Compass failures.

But the issue Qantas faces today is not the domestic business, it is the international one. And in that market it is the privatisation of Qantas rather than deregulation that has the most impact. International air travel is competitive and there are less controls on obtaining route rights than their used to be. But the problem for Qantas is that some of the airlines it competes against are Government owned, and some governments subsidise air travel for the "externality" of the economic benefit of visiting passengers. Such a strategy is particularly attractive to any location that can develop as an airline "hub". Australia has no city with such an advantage.

Michelle Grattan is describes the story as having three villians and no heroes. There are actually a set of three related stories here. The first is the story of Qantas and its strategy. The second is the story of Government transport policy. The third is the question of industrial relations law itself.

Qantas is faced with a challenge in its international operations. Paul Sheehan neatly listed what he claimed were ten errors in the battle for "perceptors". The bottom line is that Qantas has announced a slash and burn and off-shoring strategy without trying to get any stakeholders on board. Most notably the current qantas strategy seems to be in breach of the articles of association provisions in the Qantas Sale Act.

But ultimately the question is whether simple off-shoring is better than reverting to the previously thwarted strategies of global merger. In this we think of the inherent logic of "code sharing" on flights, and the global "alliance" structure and question whether a better strategy is simply to fully merge a set of operators, maintain a set of brands but not actually ever fly the same segments. In such a strategy Qantas wouldn't just cut some of its UK flights, but all of them. But equally BA would stop its flights to Australia. Qantas branded flights would fly to Asian hub points to connect with BA branded flights. There seems to be no reason for the actual "code share" crap which simply makes departure and arrival boards at airports totally unintelligible.

A good first partner in such a venture is Air New Zealand. To overcome some of the initial concerns from such a strategy both airlines would fully separate their domestic and international arms.

What needs to occur first I suspect is to unstrap the CEO, and possibly the chair, so that they rethink strategy. The only truly valuable thing in Qantas is its brand - that needs to be revived before it is totally destroyed. (And it is probably better that the brand be preserved internationally rather than nationally - in other words rebrand the domestic operation).

To support this strategy the Australian Government needs to take action. To get the Government to take action requires a far more sophisticated approach than exhibited by Joyce over the weekend. To ring the PM who you know is involved in CHOGM, having already relayed to the relevant Minister the position that the shutdown was irreversible, and expect her to either take your call or call you back is the height of arrogance.

The management of Government Relations at Qantas also raises interesting questions. The report of the attempt to contact the PM shows the contact was made by Olivia Wirth who is Group Executive Government and Corporate Affairs. It looks like Qantas handles everything in house as there is no entry for Qantas as a client on the register of lobbyists.

Wirth was recruited to Qantas in 2009 to head PR where she was to report to David Epstein and work alongside Jane McKeon. The former is a long-time Government insider, the latter was the head of Government and international relations.

McKeon was poached by Virgin in June 2010 at the same time as they hired the candidate Joyce beat for the top job at Qantas - John Borghetti. Wirth was appointed to the top job in April this year following the departure of David Epstein.

Having lost its government relations expertise the decision to not employ a lobbyist reflects great hubris on the part of management and the Board. I should note that Singapore Airlines, Air Pacific, Air New Zealand, Emirate and Etihad all employ lobbyists - as do Telstra, BHP and Rio Tinto). I do not doubt the ability of Qantas management to talk directly to Government. Lobbyists however provide three essential benefits. 1. They are not as deeply involved in your strategy and will tell you the unpalatable truth about how your messages will be received. 2. They are in far more regular contact than you can ever be...they have a permanent presence. 3. They provide a very useful conduit for "unofficial" communication.

Separately from Qantas' own strategy the Government needs to urgently review its own airlines policy. Most importantly the failure to allow Qantas to become part of something bigger has to be addressed.

The first is to speed up the process of mutual border recognition with New Zealand so that the direct flights between the two are domestic flights not international. That then means these flights stay in the merged domestic Qantas Air NZ merged business. It also facilitates entry to those routes. (But a flight like the Emirates one through Sydney remains international and passengers need to do full customs and immigration.

The second is to adopt a new "competition policy" on landing rights. Basically if an airline that flies to Australia is government subsidised in any way then it faces an additional landing tax.

The third is to make the necessary changes to the Qantas Sale Act to allow Qantas to reorganise its business.

Finally, there is a "national security" argument for maintaining flight servicing facilities in Australia (could we face isolation if we could no longer access the Qantas "fleet base" in some other country). The extent to which that national security requirement exists and how much it is "worth" needs to be the subject of proper investigation.

Behind all these there is the Industrial Relations policy issue. While some like Malcolm Colless have argued that this dispute highlights the weakness of the Fair Work Act, there is actually little reason to believe that similar industrial action could not have occurred under Work Choices.

However, to the extent it is a test for the Fair Work Act, the alternative view is that it could provide a definitive case of the Act working.

But let's be abundantly clear, the issue and dispute is far more about airline competition policy than it is about industrial relations policy. But I suspect the CEO and Board of Qantas don't actually get that.

Novae Meridianae Demetae Dexter delenda est

Wednesday, October 26, 2011

As if by magic

I write about the issue of power, and lo I then discover a story about the 147 companies that control everything. An interesting read about modelling of networks really.

These are mostly financial houses as per my note about corporate power.

A retort tried to argue that these finance companies were ultimately just agents for all of us as investors - but that is technically rubbish, especially if what we "own" is an investment in a super fund.

Meanwhile in another observation on complexity economics we learn 'Groupon Is A Disaster'. Anyone who lived through the tech boom and bust of the 1990s could have told you that.

That is about as un-newsworthy as is The Internet is Insecure. Problem with that report is the assertion "Australia is taking a positive lead by working with other nations to identify and try to solve some of the issues with the internet. But the pace of this world-wide effort is glacial and more needs to be done." Stuffed if I can see that happening given the very low Australian presence at ISOC and IETF meetings.

Novae Meridianae Demetae Dexter delenda est

A good read on global warming

Why you should not be a sceptic from the WSJ.

Novae Meridianae Demetae Dexter delenda est

On Democracy

This is one of those grab bag posts caused by a flurry of stories in today's press.

It starts with an item by Peter Costello in which he bells the cat on the "faceless" "powerbrokers", most notably those in the ALP. After an introduction about the influence of Deng Xiaoping after he formally "retired" (and one could add Lee Kwan Yu) he writes;

In Australia we have people who imagine themselves as latter day Dengs - who hold no office but boast that they can make and break party leaders and governments. These are the people the press describe as the ''faceless men'' [although we are getting heartily sick of seeing their faces these days], factional warlords, or ''party powerbrokers''.

The way to become a powerbroker is to spend an inordinate amount of time on internal party ballots. It doesn't matter that these ballots relate to non-positions of no influence. A powerbroker must engage in ceaseless activity. This shows everyone how important they are. It helps to have a union or followers who provide the factional boss with some bragging rights. But the most important skill of all is to cultivate good relations with the media.


It has always amazed me that the right wing operatives of the NSW branch of the Labor Party get such a soft run in the mainstream media. This is a group that brought the public the most incompetent state government in modern memory - from Carr to Iemma to Rees to Keneally. Outside their little fiefdom, where loyalty is rewarded with patronage, most of them would be unemployable. So what are they good at?

I would disagree with the assessment of the NSW Labor Government as "the most incompetent in modern memory", not least because of what it says of the Liberals that took so long to unseat it! I also think the accusation of being "unemployable" is odd - Karl Bitar has a nice little earner at Crown Casinos now, while I'm yet to hear of Costello having found a job.

But he absolutely nails the "modus operandi". After commenting on the stories about Sam Dastyari wavering in his support for Julia Gillard he writes;

There is nothing worse than being a powerbroker who has no power. So if Gillard is going down then the powerbrokers need to get off her bandwagon and take credit for her demise as much as they took credit for her ascension.

And there indeed is the rub, the ability of the faceless men or power-brokers to take the credit for events that have unfolded without their influence. The scribes who write about this no doubt also believe in the "great man" theory of history - events happen because of specific individuals, rather than (the more accurate) specific individuals fall into roles created by events.

Elsewhere the ever-impressive Jessica Irvine cautions about a completely different group of powerbrokers and influence peddlers, the business lobby groups. She writes;

Politicians and the media cop most of the blame these days for the dumbing down of the political debate. But let's not forget this entire industry of rent-seekers who are doing the best they can to muddy the waters of good public policy and confuse everyone.

Politicians need to wake up to the way they are being played. The public needs to switch on their rent-seeking bullshit-ometers when watching the next round of self-serving business advertising and learn to think: ''Well, they would say that, wouldn't they?'' And the media needs to rediscover its love of man bites dog tales and stop giving these guys a free kick.

Occupy Wall Street protesters in the United States are leading a global backlash against crony capitalism and special government favours for finance sector chief executives.

Australians have invented our unique brand of corporate rent-seekers, and far from standing up against them, we've often been complicit tools in their trade, shifting our opinion on public policies in response to their self-interested advertising campaigns.

When government thinks it's doing what the public wants, but what the public wants is in fact what big business wants it to want, we have a problem.

And that note to recognise the rent-seeking flavour of all the admonitions we hear from the corporate sector about public policy, provides a nice segue to the latest flurry of pieces on the Occupiers.

Shaun Carney rambles on a bit before noting that the Occupiers are going to have to get used to a bit of discomfort if they want to effect change. On the way through he notes the difference between Australia and the US that we actually have some elected representatives of a radical kind - the Greens. But he also notes the difference between the Greens trying to be an ordinary organised political movement, and the Occupiers who eschew such structures.

He also does a neat job of summarising the Occupiers;

The local version is a series of protest groups in the literal sense: they are protesting about just about anything you can name, from a left perspective. If interviews with members are any guide, they are variously against rising inequality, corporate and financial greed, our system of representative democracy, political parties and their leaders, failures of social justice and environmental degradation.

Sarah Caslan writing in The Conversation picked up the strand of the validity of protesting what is, without having to advocate for what you want. She wrote;

If you can’t validly protest the status quo without knowing exactly how to change it (particularly difficult for those without power who are most likely to be dissatisfied), that’s a playing field designed to entrench “the way it is” (whether one likes it or not).

Instead it is surely legitimate, as is happening with Occupy, to start conversations on change, whether they result in concrete steps or not. Part of the point of Occupy is to get people talking about political and economic systems and the possible need for change, and in that respect it is probably succeeding.

The validity of those concerns has been well detailed by James Arvanitakis in The Punch. He goes into detail about the problem of the distribution of wealth, putting profits before well-being, and finally the problem of "corporate power". (The first of these was Irvine's subject in her weekend column, and the latter of course today's). He concludes;

The Occupy Movement may not have a catchy slogan like “save the whale”. What they have done, however, is identify a sense of unease that the economic system is letting down a majority of the world’s population: and the evidence is there to support them.

Meanwhile The Conversation also reports on an ANU poll that shows a dramatic lift in the proportion of people "disastisfied with democracy" from 14% in 2007 to 27% now.

The utem tries to place the "blame" for this with the Government of Julia Gillard. What the Occupiers are trying to highlight is that the problem is much, much bigger than that.

The thesis as it is unfolding to me is that the initial "impetus" to democracy can be described as an approach to limiting power of one group over society (or citizens) as a whole. The motivation in the UK model built in the 17th century was about limitation of the arbitrary power of the monarch and aristocracy. The history of that evolution goes back further to the empowerment of the aristocracy over the monarch in the Magna Carta.

Before all of these the real "authority of the state" comes from the way it protects citizens from the exercise of power by force, be that defence against external aggressors, or the protection of life and property from local aggressors.

Ever since "corporations" were imbued with the "rights" of a natural person - including in the US the political right to campaign - there has grown a new unchecked power, the power of the corporation. The power of these corporations does not rest with their shareholders generally, but with the executives of the corporations and with the executives of the financial corporations (investment banks and pension funds) that can and do exercise shareholder control.

And in this mix elected representative politicians are seen increasingly as part of the power mix, not part of the restraint of power.

Novae Meridianae Demetae Dexter delenda est

Tuesday, October 25, 2011

The Sorry State of Telco Regulatory Affairs

I probably need to do a longer piece on this, but saying as I do there is a sorry state in Telco regulatory affairs will win me no friends. Indeed, it might even find a few people ready to hurl personal accusations about me as being "bitter" over some imagined slight.

The reality is that the state of affairs I describe is one which is driven by the same set of issues that drove the GFC (the corporate focus on the short-term outcome) and the political values of Grahame Richardson (whatever it takes).

My first case is the Mobile Terminating Access Service (MTAS) and the ACCC's process for reaching a Final Access Determination (or FAD).

The process of the ACCC setting Access Determinations was the final abandonment of the approach that initially promoted self regulation (through the TAF) and "guided" market mechanisms (negotiate-arbitrate). The experience with both of these is worthy of analysis of their own on another occasion.

The position we now have is of a central price setting regulator with limited opportunity for judicial review of decisions. The first ACCC guidance on MTAS pricing principles was to utilise a retail benchmarking approach, that access fees had to decline at the same rate as retail prices. The consequence was actually a temporary stall on price competition, as the effect of a price decline for an operator were magnified.

The Commission's next approach was based on top-down cost models from two operators. These models in one case included a highly fanciful claim for a recovery of a notional fixed line externality through a "Rohlfs-Griffin" effect, and a claim for Ramsey-Boiuteux recovery of common costs. I say fanciful because the first exercise relied upon a number of parameters that had to be guessed, not just because they hadn't been estimated but because there is no methodology to measure them. It was also fanciful because it only introduced half the externalities present in the market. The R-B pricing was fanciful because instead of estimating an Australian set of own price elasticities they used the average of various studies from other markets. They then applied these - which had been estimated using a constant elasticity assumption - to a model with a linear demand curve (where the elasticity varies along the curve).

The Commission then commissioned a bottom-up model from WIK. As I wasn't actively engaged at that time I never analysed the WIK model.

The Commission commenced its current inquiry with a radical discussion paper that considered (1) the prospect of moving to LRIC rather than TSLRIC+ pricing, (2) the option of pricing mobile-to-mobile termination differently from fixed-to-mobile and (3) the option for a "pass through" mechanism of declining MTAS rates on fixed-to-mobile calling.

A consequence of the appeal to LRIC (which really takes common costs out of the equation) is an erroneous presumption that in the long run the cost of terminating a call is zero. The most egregious part of this is the error of assuming that as a curve approaches zero then it eventually reaches it, but the zero line is an asymptote of the curve and really is never reached. The per call cost approaches zero because, in part, of increasing volumes. If calls cost 0.001 cent per minute but there are billions (or trillions) of minutes then the payment owed is still positive and significant.

The draft decision thankfully walked away from all three "radical" endeavours, but in doing so has inadequately supported the prices it has determined. This creates the image of the ACCC as a capricious regulator.

Nowhere is this more apparent than in the F2M pass though argument, where Telstra has provided evidence to the Commission that its net take on fixed calling after costs has declined not increased. The ACCC could have done that investigation itself using its investigatory powers but has declined to do so. They also seem to have declined to even acknowledge the point Telstra has made. Mind you, Telstra seems to have insisted on keeping these details Commercial-In-Confidence even though they probably don't meet the formal definition (i.e. there is nothing in the data which would aid Telstra's competitors). (Note I provided a very simple version of Telstra's argument using publicly available data).

Meanwhile, Optus and Vodafone who both complain MTAS reduction without F2M pass through is a free kick to Telstra have not explained why if it is such easy money they haven't entered the market (in Vodas case a very simple F2M product by override code for existing Voda mobile customers would be relatively inexpensive to create, in Optus case add an F2M only override product).

Macquarie Telecom goes to a whole other plane of idiocy. They carefully argue that they don't actually acquire the MTAS (because they are a switchless reseller) and that the product they buy costs more than the sum of PSTN originating access (0.95c/min) and MTAS (9c/min). They don't seem to acknowledge that there is obviously a cost incurred in turning the two access components into a call, they also don't seem to contemplate the obvious answer - if you believe the cost of doing that is less than the difference between the sum of the access fees and what you pay for an FTM call, then bloody well just build the infrastructure.

The complete flip-side of that is Lycamobile pointing out that as an MVNO they are paying their wholesale provider an "airtime" rate for originating and terminating calls and that they are recipients of MTAS fees, so the decision results in a price squeeze on them. Well hello, whatever made you think MTAS wouldn't decline in the future? Have you got a regulatory events clause in your contract to trigger a renegotiation right? If not, go sue your lawyers and leave the ACCC alone.

The submissions are all the classic worst case of self-interest submissions that are not framed on the basis of an established view of how the market should operate, but instead focus on the specific "ask" of their business. These reflect the operation of the regulatory craft as something that takes instruction "from the business" rather than is intimately involved as the expert on the external environment on the development of strategy.

The ACCC deserves to be resoundly criticised for the way it has handled the MTAS determination thus far, but equally the submissions from industry players do little to handle the ACCC to account.

Nowhere, however, is the sorrt state of affairs more apparent than in the bleating by Internode (among others) of wanting to be "compensated" for the stranded asset of their DSLAM investments. The assets were not deployed like an HFC network with a thirty year or more life expectancy, more likely 2 to 3 years. None of them need to be retired immediately. The "exchange exit cost" has always been something they need to consider as a future liability.

Novae Meridianae Demetae Dexter delenda est

Monday, October 24, 2011

Occupiers again

I can't seem to get over my obsession with the Occupiers. Following their eviction in Melbourne and Sydney in recent days, there is a new flurry of confused commentary.

The standard line gets repeated that the occupiers need a point not just publicity.

A new avenue is found by David Penberthy who tries to claim that it is a left-wing protest about left-wing problems. He makes a number of errors, first by grouping everything that is not conservative into one basket of "the left". Yes some of the occupiers are your usual group of Trots who practice continual revolution, object to everything etc. But a slab are not, they are more thoughtful.

The second is to try to use the European protesters in Greece as if they are the same as OWS. They are not. To go to blame US problems with;

it is highly debatable whether the broader economic troubles are being caused by the kind of obscene and indefensible greed demonstrated by the likes of Goldman Sachs, or excessive government spending and sloppy banking policies which meant that hundreds of thousands of people were given money for mortgages which they could never repay.

is to suggest that "sloppy banking policies" had nothing to do with lax regulation. The "excessive government spending" has mostly been on very un-left war efforts.

A more thoughtful piece notes;

Not surprisingly, the 1 per cent are fighting back. Given their disproportionate wealth, power and privilege compared with the demonstrators, their PR message is cutting through. It is that the dissidents are ridiculous and their message unclear.

To make the point the author provides some snippets from the New York "Declaration of Occupation";

As one people, united, we acknowledge the reality … that no true democracy is attainable when the process is determined by economic power. We come to you at a time when corporations - which place profit over people, self-interest over justice and oppression over equality - run our governments. We have peaceably assembled here … to let these facts be known.

They have taken our houses through … illegal foreclosure … they have taken bailouts from taxpayers with impunity and continue to give executives exorbitant bonuses.

They have continuously sought to strip employees of the right to negotiate for better pay and safer working conditions …

They determine economic policy, despite the catastrophic failures their policies continue to produce … join us and make your voices heard!

To put the US housing experience in perspective - why is it that the financially illiterate people who borrowed money on the professional advice of their bankers and brokers are the ones to suffer, while the bank executives have been still taking their salaries and bonuses, and the shareholders who failed to appoint competent Boards have been largely protected?

And it is not true the movement has no demands, their eight demands include specific ones about revamping financial and corporate regulation. Some of these are as appropriate in Australia.

Novae Meridianae Demetae Dexter delenda est