Monday, February 28, 2011

Conroy right on factions, but also wrong...

A report today that Stephen Conroy has noted that factions are "a fact of life, so to try and pretend that you can wave them away is to, again, spend your time indulging yourself in a debate that's utterly pointless."

He was responding to calls from Kevin Rudd that if Labor was to remain a viable party of the people, that it eliminate the power of factional leaders and factional bosses.

Conroy is right that factions will emerge in any group where majority rule works. Factions are just the manifestation of how people will agree to side with one another to achieve common objects. That, after all, is why factions now emerge in the Liberal Party. Indeed the stronger the party discipline on not crossing the floor of Parliament has become, the stronger the Liberal factions become.

Conroy is also right that rule changes about the term of the national president are just "indulgences."

But what both Rudd and Conroy should embrace is the possibility to get factions to again be concerned about philosophical and policy positions rather than the mere thuggery of the ability to exercise power. The latter is what the NSW Right has become, and it does so through the exercise of power through the union part of the structure not the branch part.

(Note, I know there are many right branches, but these are often people who are counting on patronage from the industrial right. Neither Left nor Right stands for any ideological position. The Left has been as much to blame for the gutting of debate from part activity as the right.)

As a case in point consider the question of appointing the Ministry. If the PM gets to appoint Ministers then you run the risk of Ministers not being prepared to speak up on matters of importance for fear of punishment. But the caucus appointment system degenerated to lists generated by factions and sub-factions to share around the spoils. Neither of those is guaranteed to generate the best Ministry.

But if you genuinely said to the caucus, I want you to list the thirty people you think would do the best job at running the country, and by extension winning an election, then I'm prepared to bet you'd get the very best Ministry. It all went south when Robert Ray and John Faulkner used the factional system to deliver to Bob Hawke the Ministry he wanted.

The evil is "show and tell". We have a secret ballot for general elections for a reason - it stops bribery and tammany practices. Yet the ALP is prepared to condone it at annual conferences and in the caucus. By all means let factions discuss and agree, but remove the thuggery.

As for Rudd, he has no one to blame but himself. Firstly he allowed himself to believe in the importance of the NSW Right. Having done so he became their hostage. Though the move against him came initially from other States it remained the NSW Right that pulled the trigger.

And what cost Rudd his job was doing Bitar and Arbib's bidding on climate change.

The reports (1, 2 and 3) on the secret parts of the ALP review make interesting reading. The NSW Right is proud of its achievement in winning Greenway and holding Lindsay but they benefited from the Liberal's failure to campaign well.

But the telling part is that all the stuff Rudd did to help retain the Western Sydney seats alienated the rest of the support base.

Ultimately I think that Rodney Cavalier has it right with his tireless campaign about the role of the unions in the party. Until the ALP is run by a membership of people who have decided they want to be part of the party it will continue to only act in the interests of the political class. Can anyone explain to me why Joe be Bryun of the shoppies and Paul Howes of the AWU should be as influential as they are?

Second note: My concern is not a Howard-like rejection of unions nor their right to engage in political campaigns. It is against the idea that unions any longer as a group accurately represent the aspirations and interests of the working class.

Novae Meridianae Demetae Dexter delenda est

AFACT and iiNet

The decision in the AFACT appeal in the iiNet case has led to much commentary.

Typical in the IT news have been the suggestion that the copyright holders continue to misrepresent the extent of copyright theft, and the repetition of the ISP industry claim that they are a mere conduit.

The decision in fact really went mostly the way of AFACT. As they outlined in their press release. As the article in The Age more succinctly put it;

It considered that iiNet, by sitting on its hands, would have been liable for authorising the infringements if the notices had contained more verified and more specific information. However the notices given by the film companies were, in the form that they were given, insufficient to require iiNet to take steps to prevent the infringements...

Although iiNet won the appeal, this was simply because of the shortcomings in the way that the notices had been given. Copyright dependent industries now have guidance on how to give ISPs notices that will require ISPs to take reasonable steps to limit the notified infringing activity, or else be liable for authorising its continuance. ISP immunity from damages is now conditional upon ISPs adopting realistic repeat-infringer account termination policies.

It is important to address the "mere conduit" argument that the second referred article relied upon, and which the industry association the IIA also wanted to rely upon. The comment on the itWire story from Verity Pravda really nails it;

Let's be really simple about this, if I assist you to commit a crime it really is my intent that matters.

At the simplest level if I don't know you are committing a crime and do nothing to encourage it, I am blameless. If you rob a bank and catch a ride in my taxi for the getaway I am not an accomplice.

If I say you can borrow my car and I have no idea what you want to use it for and you use it as the getaway car then I am also blameless. If however I say "if you want to rob banks you can borrow my car for the getaway" or if someone else tells me you've been robbing banks when you borrow my car and I then do nothing about it you then are an accomplice.

iiNet got off on the first of these - just. ISPs need to be very cautious about promoting the use of their services for downloads. (The specifics were the accusation that iiNet promoted downloading something in an ad that at the time could only be downloaded from a copyright infringing source. Part of the issue is its not the downloading that creates the copyright breach).

It got off on the second because AFACT did not craft its notices well. If AFACT takes a more co-operative approach rather than demanding approach with ISPs it will do better.

The appeal also did wonders for the regulatory compliance industry. The trial judge had found iiNet could use safe harbour provisions because iiNet had a disconnection policy that was, in effect, in the CEOs head. All three appeal court judges found that not to be the case, that actually a policy needs to be expressed in more detail and formally adopted.

Novae Meridianae Demetae Dexter delenda est

Thursday, February 24, 2011

Rupert on broadband

Australia's media elite seems to be engaged in a campaign against the NBN. How things have changed. In 2006 The Oz reported rupert Murdoch's comment that;

When you have broadband - real broadband, not the type they're talking about here - where you get, say, 20Mbps of data into your home, it changes everything. People then spend a lot of time with their laptops and computers. In Australia we only have a couple of million people on broadband and they don't even get 1Mb. I think it's a disgrace.

He went on that;
the Government and Telstra should be spending $10 billion or $12 billion on it to reach every town in Australia; they do it in Japan, they do it in South Korea, we should be able to do it here. We are being left behind and we will pay for it.

James Packer was also reported to have been equally critical. In that speech Packer said

Our services are totally dependent on this infrastructure. We need faster broadband speeds in order to stay competitive to the rest of the world and that is starting to be understood, I believe, by all stakeholders.

Why has Rupert changed his mind? Is it because the internet is now seen as more threat than friend? Or is it because he's shaping to offer to go soft on the NBN for some media law reform?

The various recent forays including the move on TEN, the presence of Seven in CMH, the strange position of Bruce Gordon in both WIN and TEN, the consolidation of radio, the Seven WAN transaction and the continuing uncertainty at Fairfax would seem to suggest that a group of key players really expect the rules on ownership to change soon.

I don’t think for a moment that there has yet been a deal done with Government. It feels far more like these are the pre-emptive transactions before the proposition is put to Government that the rules must change with the NBN, that globalised content and the long tail mean the existing rules are already rendered obsolete.

It really looks like Seven is preparing to acquire Fairfax and that News is preparing to acquire TEN (more likely that a News Corp/Murdoch family/partially listed company will put together the News print assets and TEN). Its just that the players have decided that they’ll place the Government in an impossible position first rather than negotiate permission.

Novae Meridianae Demetae Dexter delenda est

The Turnbull assault

Malcolm Turnbull is both too intelligent and too knowledgeable to be making his attacks on the NBN from anything other than base political motives. In doing so he risks repeating his experience with Utegate - seeking to land a killer blow without substance.

In a twin assault he has appeared on Lateline and contributed a column to today's SMH.

His assault rests on a number of pillars. The first is the idea that our broadband future should be "multi-platform", and in particular that we shouldn't "trash infrastructure that works". The second is that the speed goals of the NBN are over ambitious, we don't need 100 Mbps everywhere. His third is that the wireless platform will take share and damage the numbers in the business plan.

The reality is that existing delivery is barely "multi-platform". The varieties of fixed broadband in Australia are all either using the single copper network of Telstra, one of the Hybrid Fibre Coax networks of Telstra or Optus or a few smaller regional plays. Outside of that there is a smattering of fixed wireless, a growing additional usage of mobile wireless and satellite in regional areas.

The NBN plan really only addresses two of those pieces of infrastructure, building an FTTH network to 93% of premises. But the original idea didn't come from Government, it came from the owner of the dominant fixed network.

Turnbull's other claim to fame is as an early owner of Ozemail. When he ran the business it was providing e-mail and internet access through banks of 300 bps modems. At the point of sale I think they were just progressing through the 14 kbps stage. I wonder if then he expected that by today users would barely be happy in the 1 to 10 Mbps range. The compelling graph that NBN Co uses (below) really puts the onus of proof onto others to say why the trend won't continue than on NBN proponents of having to name the future applications.

In November 2003 Telstra's Tony Warren told Senate Estimates;

I think it is right to suggest that ADSL is an interim technology. It is probably the last sweating, if you like, of the old copper network assets. In copper years, if you like, we are at a sort of transition—we are at five minutes to midnight. There is quite a long delay in lead times on all this—

Bill Scales and he further explained;

The only point of clarification, just so that there is no misunderstanding, is that when we think about the copper network we are still thinking about 10 years out. So five minutes to midnight, in this context— (Doesn’t mean five years.) It does not. It could be 10 or even 15 years, just to get some context into that....

Telstra went one stage further and in July 2005 presented to Prime Minister Howard, Comms Minister Coonan and Finance Minister Minchin their The Digital Compact and National Broadband plan. This was a plan for a "Fibre to the Node" network, the price for which was a regulatory reform to wind back the access regime and install a commercial monopoly.

The then coalition Government thankfully rejected the approach - though perhaps more because Telstra noted "We are aware that our request to reopen the discussion of the regulatory environment that surrounds the Telecoms industry (not just Telstra) has potential downsides - including a possible decision not to proceed with the T3 sale." (emphasis added)

The response of the rest of industry to propose a co-operative approach - the G9 which became Terria - gave the coalition an alternative. They set up a two part process - effectively a tender for the policy for an FTTN component and a tender for a regional (wireless component). They got so far as awarding the OPEL contract (despite knowing that OPEL could not meet the conditions precedent in the contract). An election intervened and it was left to Labor to euthanise OPEL.

When the NBN Expert Panel reviewed proposals in 2008 time had moved on. No longer did building an FTTN look like a cost effective migration to an eventual FTTP network - it looked wasteful. The plan was recut to NBN 2.0.

So the idea to "trash" existing infrastructure came from the owner of that infrastructure who has signalled that it can't last and that the competition policy model of the past could not sustain its commercial replacement.

Turnbull also hankers for some kind of mystical multi-platform multi-provider model. He spent enough time (and made enough money) as a merchant banker advising players as first Australis went under and secondly Optus wrote off most of their HFC investment and dissolved Optus Vision.

A definition of insanity is to do the same thing expecting a different result. I've never thought Turnbull was insane, but the comments about multiple platforms suggest it.

When Turnbull owned Ozemail he sold internet and e-mail services using banks of 300 bps modems. When he sold I think they's started using about 14 kbps as well. I don't know if back then he thought that users would now expect 1 to 10 Mbps. If he did I'm sure he couldn't have told you what applications people would use.

NBN Co uses a Fibre to the Home Council graph of the exponential growth in speeds (below). The onus is on those who believe the trend will change to say why it will change, not on those who believe the trend will continue to say why it will.

Finally he is caught between either believing that the NBN could “could forestall the development of, as yet unknown, superior technological alternatives” or of telling us that the NBN business case suffers from the understatement of the proportion of "wireless only" homes. This one is really tough. You will not find a technologist who won't tell you that the fastest speeds will be through fibre and that the passive splitting approach supports all the likely upgrades for the next twenty to thirty years.

The Telstra and Optus position is that wireless is only a complement to fibre. They don't have enough spectrum for forecast demand as it is and their strategies in the future will be femto-cells at home to offload traffic. Yes there is some uncertainty about the future, which is even more reason why the investment needs to be made by Government.

PS Related but different point. Nick Xenophon wants the Feds to insist the States take out flood insurance. Apart from the fact that no one offers flood insurance for roads and that the premiums specifically on offer to Qld were too high (see Q&A Monday), to pay for insurance means paying to a commercial enterprise (the insurer) a profit margin for accepting the risk. For the events that we are talking about insurers themselves aren't even safe - think HIH and Hurricane Andrew. Government is an instrument for managing risk. Use it.

Novae Meridianae Demetae Dexter delenda est

Wednesday, February 23, 2011


I had the great pleasure to spend the last two days at the Communications Alliance conference Broadband and Beyond. Many great things discussed though I still think we don't get enough the need to promote the benefits of true fast broadband, and not to just dress it up in whoosy "e-" words.

One interesting presentation focussed on the use of adaptive agents and highlighted that such agents could be useful but could fuel "cyberbalkanisation. This is the concept of the World Wide Web fragmenting into islands and people talking within sub-groups.

The presentrer's idea was that certain adaptive agents would trap users into net subsets. However this is not the only possible source of cyberbalkanisation. The Economist magazine discussed other scenarios last year.

This term is apparently used as far back as the mid 1980s though Cass Sunstein was credited by the speaker as the inventor though his work supposedly is really only in his book which first appeared in 2000.

Sunstein is of course a favourite of mine as the co-author with Richard Thaler of Nudge.

Researching the usage reminded me that the term was actually used in a piece of "futurism" conducted by the old Australian Communications Authority. There was at the time an objection from someone of a slavic decent who objected to the racial connotations of the term.

The final report is still available from the ACMA website. I should have a read seven years later and see how it went.

Novae Meridianae Demetae Dexter delenda est

Monday, February 21, 2011

The bookshop (part 2)

Since penning (is that verb appropriate for an electronic blog) my post on the A&R/Borders debacle, there has been a great deal of commentary.

I took heart from the comments in New Matilda from a bookstore owner who ascribed the failure to "megalomania". As he says "Borders, like so many other short sighted businesses, sacrificed profitability for market share. They poured huge money into extensive stockholdings. Their hope was that if they stocked everything, shoppers wouldn’t look elsewhere." The story is the failure of the Border's model and how it then infected the A&R/Whitcoulls business.

That said I'm sure the clever people (I'm sure they all have MBAs) who ran Pacific Equity Partners thought that the addition of Borders to their existing business with the 30% market share it gave them were going to succeed in the category killing game.

A comment on that post drew me to the blog from Scribe Publications. This useful piece points out that RED group might now be blaming the non-decision on parallel importing, but that they never made a submission. He rightly tags the business model but still wants to suggest that the demise is Australian dollar and GST related.

In truth e-books may well start causing a demise - but they are equally likely to grow the overall reading category. Few people who consciously buy online a book they can get off the shelf or in a few days from their local bookseller. They may buy on-line as an impulse buy (because the amazon link always comes up if you Google search - but A&R and Dymocks do to if you search Google Books).

The lesson is - I repeat - far more about category killers. The A&R half of the story is very much about the industrial damage caused by the ACCC approving the A&R acquisition of Borders. A retailler with 30% market share has to keep growing share to kill off more competitors or collapse under debt....neither is good for consumers.

Note: Sort of funny that Scribe Publications are the publishers of the very dodgy The Force about which I ranted.

Novae Meridianae Demetae Dexter delenda est

Regulating broadcasting

The Australian Competition and Media Authority recently decided that the Seven network coverage of former Minister David Campbell had not breached the privacy provisions of the Commercial Television Industry Code of Practice 2010.

The ACMA found that "while the broadcast invaded Mr Campbell’s privacy", but concluded "it was nonetheless in the public interest to use the material as it explained the Minister’s resignation."

The decision has been noted for its circularity, given that the Minister's resignation only followed from Seven advising him of the footage and his apparent belief it would be broadcast.

Ultimately though it shows the relatively powerless nature of broadcasting regulation.

Mark Day today recounts a tale of a rather horrid little competition on 2GB and 3AW. But he notes;

I would like to think Chris Chapman, the head of the Australian Communications and Media Authority would step in and hit Smith and John Singleton's Macquarie Media (owner of 2GB, 2CH and partner in MTR) with every penalty in the book, if only for breaching a broadcaster's obligation for decency.

But he probably won't because ultimately, short of stripping the station's licence, there's not much he can do under existing laws.

Ultimately the modern libertarian view would be that we shouldn't interfere directly with licencees rights to broadcast, though we'd probably also expect them to fulfill things like the MEAA Code of Ethics.

It can be argued that Adam Walters in the Campbell case clearly breached Clause 2 (Do not place unnecessary emphasis on personal characteristics, including race, ethnicity, nationality, gender, age, sexual orientation, family relationships, religious belief, or physical or intellectual disability.) and Clause 8 (Use fair, responsible and honest means to obtain material.)

The shock-jocks of talkback radio are another thing though. As John Laws used to try to defend himself they are "entertainers" not journalists. The "competition" could easily be found to be in breach of The Commercial Radio Code of Practice.

The good news in the story by Day is that in the US the shock-jocks are losing audience, both in individual surveys and in cancellation of syndication contracts. It may take a while here. After all 2UE seems to have made a strategic decision to lurch to the right in 2011.

But maybe we need something in between the actual regulator (the ACMA) and the industry to hear complaints. It would be good to have someone able to make more noise about breaches of the codes than the ACMA is able to do.

Maybe this is a task for the Convergence Review.

Novae Meridianae Demetae Dexter delenda est

Friday, February 18, 2011

The bookshop

Did you ever hear about the cinema? Television was going to kill it. For a long while it looked like it was going to, as suburban cinemas and drive-ins disappeared everywhere. Then the megaplex emerged and movie studios got the hang of marketing films through multiple windows - cinema, rental, pay tv, purchase, free tv. They even have reduced some of the gaps between windows to maximise the carry over effects of the advertising spend on earlier windows. Of course sequels are even better when you can time the free tv release with the cinema release of the sequel.

The news that the group that owns Angus & Robertson, Borders in Australia and Whitcoulls in New Zealand has gone into administration has fed a flurry of opinion pieces about the future of bookstores. It has been under-reported in Australia that Borders in the US has also entered into Chapter 11 bankruptcy.

Let's first unpick the story a bit. Borders Australia was sold to A&R Whitcoulls Holdings which in turn was owned by Pacific Equity Partners in 2008. They then formed RedGroup Retail to house both businesses and pay off debt.

The acquisition was not opposed by the ACCC. The ACCC's assessment was dominated by discussion of whether A&R would reverse Borders discounting policy.

This itself was a nonsense. The Borders asset was for sale because its parent was in financial trouble. A "with or without" test on the merger wasn't about the future with a vibrant Borders.

The ACCC satisfied itself on the dynamics of the Australian book market alone. In particular it noted;

The ACCC considers that, although the internet may be an increasing channel for
book purchases in Australia, it is not a close substitute for the merger parties and
is not comparable to the bricks and mortar retailers in terms of the competitive
constraint it would provide to the merged entity.
Specifically, the ACCC considers that the internet is unlikely to provide a strong
competitive constraint on bricks and mortar book retailers, at least in the short to
medium term, and the ACCC did not rely on the internet as a constraint in
reaching its decision.

I have not troubled myself with the detail of the ACCC report. Suffice to say that it is also a nonsense in the way it analyses competition, in particular referring approvingly of "discounting". The theory of competition on which the trade practices law is based doesn't allow for discounting because there is one market price determined by the effects of competition.

To the extent discounting has had a deleterious effect on bookshops it has been the discounting by non-specialist booksellers like Myer and Big W of new release books. This has taken a large cash flow away from the bookshops that needed that cash flow to contribute to the overheads of a big store with a large stock.

The ACCC report only very briefly touched on the issue of the parallel import restriction. This restriction has been retained by the Government despite a contrary recommendation by the Productivity Commission because the Government is more concerned by the luvvies in the content creation business than by the book purchasing public.

My version of this horrid tale is that the Borders business model was always a "crush the competitors" strategy. That strategy looks good early, especially as all you take out is the very bottom end of the market. When the strategy is only confronted by the other big guys life is a lot harder.

The costs in crush the competitors are all big upfront costs in store fit-out and acquisition. You have a higher fixed cost than everyone else and can't be as nimble in competition.

So then you die. Borders group should have died in 2008. The Us was saved by the cash from the sale of Australia. Australia was saved by having new owners.

The new owners thought it clever to buy out the cheap competitor, but could never sustain the sales - especially once they junked the CD sales. So Borders brought down A&R. Everyone should just have let Borders die in 2008. Or even stopped Borders from opening originally under FIRB rules - as the end game was always obvious.

There were only two possible end-points. Borders won and crushed all competitors, hence creating a monopoly. Or Borders failed but caused the closure of a lot of Australian retailers on the way through. Set up like this the FIRB would have had no competition or trade concerns.

Similarly it could be argued the ACCC should have opposed the Whitcoulls acquisition on the same basis. The acquisition was only viable if the merged entity could crush all competition. If the merger was not viable it would damage the book retailing market by taking out A&R on the way.

Ultimately the solution to this is in the wholesale not the retail market. We need to facilitate entry and exit in retail by creating a better more vibrant wholesale market. That means an end to the prohibition on parallel importation.

Just imagine your local friendly bookstore, with books on the shelf you do want to buy. But he also has an online ordering system to a global wholesale equivalent of Amazon, but he gets his books at a bulk shipment rate. Indeed the wholesaler would have a strategy of deploying some books further down the distribution chain. So for Asia Pacific there might be the equivalent of an Amazon distribution post in Singapore.

Finally, e-books are wonderful. But I'll stick with my kindle so I don't need to worry about the Kobo Borders tie in.

Novae Meridianae Demetae Dexter delenda est

Tuesday, February 15, 2011

My enemy's enemy

There is a common fallacy that "my enemy's enemy is my friend."

A variant of this fallacy can be found in the modern left. In What's Left Nick Cohen asked how it was that the modern left defined itself as being "anti-American".

He rightfully pointed out that a consequence of this had been the tendency of the left to side with despotic rulers, and misogynists, because these people like the left despised the US. The single most notable example, of course, was Saddam Hussein. It was indeed bizarre to see the left luvvies out in force supporting his regime in Iraq merely because he was anti-US.

This is not the post for me to expound my new theory of the left, but it is an opportunity to talk of other cases of the "pseudo left." Gerard Henderson has long done a fine line in identifying the unreconstructed commies who were fellow travelers with Stalin.

He did a sterling job in today's SMH of outing the lovers of the new darling of the left, Julian Assange.

Henderson notes that Assange voluntarily traveled to Sweden. In fact he based himself there because of their slightly odd approach to freedom of information. Unfortunately for him they have an equally odd approach to sexual assault laws.

The most bizarre part was Assange's press conference last week where he bemoaned the fact that he hadn't yet been allowed to defend himself of the actual charges since the extradition action had focussed on the lawfulness of his arrest given that police did not seek his voluntary co-operation first.

If Assange wants to defend the charges he must go to Sweden.

But to Assange and that other horrid Australian John Pilger there is automatically some link to the US and the machinations of the White House. He somehow fears that a return to Sweden facilitates a rendition to the US.

Assange is no hero, but nor is he a villain. He decided to use the laws of Sweden to run a website for the publication of leaked information. He hit pay dirt with a very large number of quite innocuous US cables.

The rest of us need to decide the status of Assange on the facts of Assange, not to laud him on the basis of our perception of the attitude of the US administration.

Novae Meridianae Demetae Dexter delenda est

The force and the farce

Some years ago I was awarded at the annual Australian Communications Industry Forum an award of the "Meaty Bites Award" for (I think) the most inappropriate comment at a committee meeting.

The committee in question was discussing the code for deployment of radio-communications infrastructure. A community representative on the committee was most concerned about siting base stations near schools. We were patiently explaining that actually the safest place was beside and below the transmitter, that forcing them 250 metres away from schools was more likely to increase the intensity at the school.

We, I think, used the analogy of a torch beam angled down from the top of the tower and where that beam would form - because that is exactly what is going on just at a different frequency with a bit more refraction.

The person questioned how we "knew" that there wasn't "stuff falling down from the tower". Basically we replied that we knew there wasn't because we measured for "stuff".

We seemed to have her convinced until she said. "But you don't understand how hard it is. What am I supposed to tell people like the woman who rang me. She lives next door to a tower and she got cancer. Then her dog got cancer and died. What should I tell her?"

Unable to believe this leap in logic I simply replied "tell her that dogs die." It was, of course, a perfectly good response to a litany of post hoc ergo proctor hoc reasoning. Anyhow it was decided the committee might work better if I absented myself from then on.

But you can't keep a good advocate down. The person has now emerged with a book titled The Force. Personally I think it should be called the farce because there is nothing substantial in it (note, this is based on a thumb through at a bookshop - I would NOT buy it).

Rather than going further I'll just refer you to a somewhat fascinating blog post about the author, or you can just check out her website. It is distressing that the author was recently used as an expert by Channel 10's 7pm project.

And to think Malcolm Turnbull thinks we don't need the NBN because wireless will do everything.

Novae Meridianae Demetae Dexter delenda est

More on Greenhill Calliburn

Yesterday I noted that Greenhill Calliburn had backed up my comments about the robustness of the NBN Co business plan.

Last week I responded to an op-ed in the AFR which is behind a paywall. The original letter as submitted reads (the letters editor unpacked the acronyms):

There are many bases on which to criticise the NBN and the Government’s approach to it. These mostly relate to its governance structures and accountability. They do not, however, extend to questions of its logic in pursuing a single, national, structurally-separated and Government funded fibre access network.

An enduring legacy of the Trujillo era at Telstra is the commentators who were fired up by Phil Burgess to push a US-style libertarian line. Michael Porter is one of those and has shown with his rambling and incoherent comments that he simply doesn’t understand the market and the technology (“Time to ditch broadband clunker” AFR 9 Feb).

The line Porter pursues is that we could have the wonders of 100 Mbps now through HFC and wireless without government intervention and with competition. The problem is we tried that and it wasn’t what we got.

The expensively duplicated HFC networks don’t provide the possibility for everyone connected to simultaneously get that speed, even with DOCSIS 3.0. That speed is achievable with wireless if you and your dog are the only users of the base station and the metaphorical equivalent of “the wind is in the right direction” – that is under the best possible environmental characteristics.

On some specifics, no part of Telstra’s agreement decommissions modems from Optus’ HFC cable. The HFC cable owned by Telstra is exclusively used by Foxtel, not Austar (which is satellite only except in Darwin where they own the HFC).

The Government is keen to get Telstra’s participation to deliver structural reform to the industry. It also recognises that which we forgot in the eighties and nineties, that wired communications infrastructure to the home is just as much a natural monopoly as gas and electricity distribution.

I now note that Greenhill Calliburn also share my concerns about governance, writing;

To the extent that the requirements generally imposed on government business enterprises
fail to do so, Greenhill Caliburn recommends that the Commonwealth agree with NBN Co that
it will make a number of detailed, periodic disclosures to the Shareholder Ministers to allow
them to assess the implications of any variations on a more timely basis and evaluate and
introduce mitigants as required.

Novae Meridianae Demetae Dexter delenda est

Monday, February 14, 2011

They could have saved their money

DBCDE has received a report from Greenhill Calliburn that according to the Minister says "that NBN Co's Corporate Plan is what it would expect to see from an Australian blue chip company: The assessment states that the Corporate Plan provides "...the level of detail and analytical framework that would be expected from a large listed public entity.”

They could have saved themselves the money. As I wrote for itNews "In my opinion it is a very robust plan, very soundly based on a methodology that any corporation would recognise."

Nice though for the Minister and Department to commission a report to back up my commentary.

Novae Meridianae Demetae Dexter delenda est

The art of selective quoting

In a piece in today's SMH titled Use broadband funds instead, says business council economics correspondant Peter Martin starts;

The federal government should take money out of the funds set aside for the national broadband network to pay for flood reconstruction and abandon plans for a levy, the Business Council says in a pre-budget submission to be made public today.

This is an interesting take on the submission. The BCA media release didn't mention the NBN or broadband. The actual pre-budget submission referred to the NBN three times in 136 pages. Once was an example of an infrastructure project that had not been demonstrated to have a net benefit.

The paragraph read;

We need governments to maintain their commitment to fund important economic infrastructure. However, the current shortage of funds and labour required in our growing export sectors and to support rebuilding efforts from flood damage in the eastern states means that spending on infrastructure for the purpose of stimulating the economy alone is no longer necessary. Any infrastructure project that is currently being supported by government but which has not been demonstrated to provide a net benefit to the Australian economy should be strongly reconsidered. The largest of these projects is the National Broadband Network.

The BCA is here apparently conceding a very Keynseian that a government could justify an expenditure purely on expansionary grounds. The argument here is that since we don't need expansion then only projects with a positive net benefit should be pursued.

But the problem is there is likely to be more infrastructure projects with a positive net benefit than would be able to be met from the budget, and especially so if there is an additional constraint of not wanting to overheat the economy.

If the real issue is a net capital constraint, the theory is not that you invest in projects with a net benefit, but instead you invest in those of all the competing projects that have the highest benefit/cost ratio.

The challenge remains identifying the real benefits. The CEOs who make up the BCA get paid a lot of money to make business decisions. They make these decisions on incomplete information, just like governments.

The only other references to the NBN were in the context of labelling the "intergenerational report" as "political". Since when is it a crime for politicians to be political? That is what we pay them for - to make decisions on incomplete information.

As for journalists, in particular economic correspondents, it looks like we pay them to peddle their favourite prejudices. How else to explain;

The council's submission echoes a report from the Economist Intelligence Unit in Britain last week that found Australia's proposed network to be the world's most expensive, offering relatively poor value for taxpayer funds.

Novae Meridianae Demetae Dexter delenda est

Asylum seekers and other unauthorised entries

What we glibly refer to as "boat people" is in reality a part of a group of people more correctly specified as "unauthorised entries". These are people who are entering the country without the appropriate permissions (visas where required, passports, proof of ability to sustain oneself if arriving as a tourist etc). It includes all those people who arrive "properly" but overstay. This number dwarfs the new arrivals but is usually forgotten. The cost of maintaining dtention centres includes the cost of detaining them as well.

None of this stops the blathering about arrivals by boat and the processing of asylum seekers or labeling them as "illegal immigrants".

Paul Sheehan in today's SMH has probably outdone any other recent comment.

Let's simply start with labelling. Sheehan wrote;

It is not just the ridiculous cost. It's the mindset. The overwhelming majority of Australians would regard the people smugglers' boats as illegal entries. Yet the Department of Immigration cannot bring itself to use the term "illegal". It refers to these incursions into Australian territory as "irregular".

Let me get this clear, we think a Government Department should label all of a group of people "illegal" merely because a majority of Australians regard them as such, not because it is the law? Firstly the decision about whether something specific is or is not legal rests on a court decision, not a bureaucrat. Secondly they aren't necessarily illegal because if they are genuine asylum seekers they have the right to do so.

Sheehan then just goes totally loopy in criticising the way we treat people without paperwork;

While the majority of the electorate appear to believe that the last people who should be allowed permanently into the country are those who try to come in illegally, the Gillard government does not even forcibly return people it has ordered to be deported.

It does not automatically reject anyone who arrives without identity papers. Instead, it follows policies laid down by the United Nations Convention on Refugees and other UN protocols.

This is simply extraordinary. Genuine, not-illegal, asylum seekers are those most likely NOT to have papers. These are people escaping regimes that are the antithesis of an ordered democracy like Australia, and people whose initial departure is often rushed.

Yes, it does create a convenient opportunity for fraudulent entry attempts. If you show up with no papers you have to be treated as a refugee. But that doesn't guarantee you entry.

What is it that Sheehan wants instead. Off shore processing like Howard introduced? Guess what most of those actually were granted asylum. Processing offshore is more costly than processing onshore.

There is no simple solution to irregular or unauthorised arrivals that is both secure and humanitarian. In the long run we need to solve the global issue of freedom. In the short term we need to act with compassion and rigour.

NB For another time, why is it the "right wing" that opposes asylum seekers? Has anyone pointed out to them that their much loved free market liberalism requires complete global mobility of labour as a precondition?

Novae Meridianae Demetae Dexter delenda est

What we are learning about cabinet government

Events in the Government and Opposition in recent days are displaying what are potentially serious flaws in the concept of cabinet governance as we know it.

The specific events are the reports that Kevin Rudd was critical of the new health package, but in particular that both the package and the flood levy were introduced through committees and cabals rather than an open cabinet.

Meanwhile the fracturing in the Liberals has its source in the decision by Tony Abbott to announce a plan to cut aid to Indonesia over the objections of his Foreign Affairs spokesperson (and deputy).

Perceived accepted practice is that both Government and Oppositions make policy decisions collectively (in Cabinet and Shadow Cabinet) and that once made there is a collective solidarity on the decisions made. The practice has always been more real for Government than Opposition, however the passion of modern oppositions (well at least the coalition since 2004) to always want to be a "Government in waiting" has resulted in them needing to pursue an active process of mimicking government.

The practice has not always been as perceived. However, the deviation from perception are increasing. They are increasing for three fundamental reasons. The first two are technology related, the third is a governance question.

The first reason is the way technology has created a "24 hour news" environment. This has stolen from politicians the key ingredient of time - there is a need to respond immediately, or at the very least more quickly than prudent. Tony Abbott went for apparent low hanging fruit on foreign aid because of the perceived need to target savings quickly and was misled by a concerted One Nation e-mail campaign to think the decision would be warmly received.

A similar news cycle factor underlines the decision to keep the gap between a cabinet discussion on the health package (Thursday) and the COAG meeting to discuss it (Sunday) short. To a degree the "leak" suggesting Rudd stormed out of cabinet provided good news cover for the Government - the story was Kevin rather than analysis of the package.

The second reason is the way technology facilitates leaks. Cabinet decisions and discussion used to be the epitome of secrecy. Just how is it that Kevin's behaviour at the meeting is becoming news (unless it really was a clever ploy to distract attention from discussion of the policy). At least in the Whitlam Government this kind of re-litigation occurred in the party room, not the media.

The third reason is that Cabinet as described in the Cabinet Handbook is

a product of convention and practice: it is not mentioned in the Australian Constitution, and its establishment and procedures are not the subject of any legislation. It is for the government of the day, and in particular the Prime Minister, to determine the shape and structure of the Cabinet system and how it is to operate.

The formal process of Government is actually conducted by the Executive Council, the handbook for which
describes the council as;

The Governor-General exercises the executive power of the Commonwealth under section 61 of the Constitution of the Commonwealth of Australia. This power extends to the execution and maintenance of the Constitution and laws of the Commonwealth.
Section 62 of the Constitution establishes the Federal Executive Council to ‘advise the Governor-General in the government of the Commonwealth’.
Members of the Executive Council are chosen, summoned and sworn in by the Governor-General and hold office at the Governor-General’s pleasure. As with most powers of the Governor-General under the Constitution, the power to appoint and dismiss executive councillors is exercised on ministerial advice, in this case the advice of the Prime Minister.

Interestingly all former ministers stay members of the Council, but only current Ministers are summonsed for meetings. The fact that the GG only acts on the advice of the PM is also part of convention not law of any kind. (Interesting constitutional law point, do the conventions have legal standing in the same way as the common law is built?)

The difference between Cabinet and the Executive Council can be seen in the example of making a senior government appointment, such as the Chair of the ACCC. The Cabinet Handbook requires the responsible minister to advise the PM of the proposed appointment, and for one this senior the Cabinet Handbook suggests it would be referred to Cabinet. Cabinet could discuss the recommendation and ask what alternatives had been considered etc. The Cabinet decision (minute) would be sent to the GG in Council. That is where the actual appointment is made, but really no discussion about alternatives can ensue. The most that is likely would be a discussion about process.

The GG in Council is a potentially effective safeguard of due process, it is a potential restraint (but not the only one) on a rogue government.

But it really is time that we decided that the actual process of government be more than just the whim of the PM, that is how cabinet works and who is called to Council meetings.

While at it we should consider whether the default position that all Cabinet discussion remains secret for thirty years (being reduced to twenty) is appropriate or instead consider the New Zealand approach where the default is they become public immediately.

What we have is no longer appropriate and needs to be revised.

Novae Meridianae Demetae Dexter delenda est

Monday, February 07, 2011

Qanda and democracy UPDATED

Q and A was back tonight.

I was out and only saw the end - quite delightful to see Gerard Henderson and Catherine Deveny seated side by side. Gerard is not a fan. (ses MWD, Media Watch Dog is back on the prowl for its third year. MWD commences 2011 with much material collected over the Silly Season and with the expectation that the usual suspects will provide much fresh material. Here’s hoping. [Why not encourage The Age to take Catherine Deveny back – that would surely help. – Ed])

Anyhow the bit that did have me paying attention was the discussion on Egypt, where GH was making the point that the champions of democracy in the Arab world were George Bush and Condy Rice. But he went on to say he couldn't see any reason why the Arab world couldn't be democratic.

Catherine Deveny almost answered for him by saying that we mightn't like the Governments they choose if they are Islamist.

This touched on Paul Sheahan's observant but pointless column in the SMH this morning. After detailing the fact that Mubarak came to be President after an Islamist assisnation of Sadat, and that Islamists have tried to assasinate Mubarak, he writes;

The words ''Arab'' and ''democracy'' have never coexisted in the same sentence as a political reality because of a third word, ''Islam'', which is not merely a religion, it is a system ordering the entirety of society, from government to law to social mores.

And there, indeed, is the rub. But we in the West should not be surprised. The Roman Catholic Church was just as opposed to democracy when it first appeared from the middle of the seventeenth century. The countries with democratic governments (England, Netherlands, Switzerland) were the countries where the protestants got their start - let alone the USA.

Gerard is a Catholic, and the Catholics have come a long way since. In Australia they've dominated the anti-monarchist cause and fostered the social democratic party. But that has not always been the way.

But it is not the religion of Islam we need to target, it is that Islam needs to accept the separation of church and state, just as Christianity had to learn to do.

If we acknowledge this and that it was a lesson we took a long time to learn, then maybe we can help the Arab states. What George Bush did in Iraq is unlikely to be of lasting value as this has not been part of this story.

NB Gerard Henderson has kindly pointed out to me that in the part of the program I missed he stated that while raised a Catholic he is and has been for decades an agnostic. He also rightly noted that the protestants weren't that "democratic" in that they usually outlawed catholicism, and for a long time much was denied to Catholics of which the British Crown is still one.

Novae Meridianae Demetae Dexter delenda est

The truth about wireless

Reports from Tellabs and Cisco tell us a lot about the future of mobile data.

Tellabs concludes;

The study showed that widely held industry beliefs about rising costs and falling revenues are correct. If the trends assumed in the model are followed, and carriers maintain their current modus operandi, carriers in each region can expect to see an end of profit within a four year window.

Cisco concludes;

Global mobile data traffic will increase 26-fold between 2010 and 2015. Mobile data traffic will grow at a compound annual growth rate (CAGR) of 92 percent from 2010 to 2015, reaching 6.3 exabytes per month by 2015.

For those pundits who still want to claim mobile will be the winner there probably are some real issues to deal with. The first is the overall capacity question. The second is the inefficiency of dividing spectrum into separate lots for different operators. The third is the means to achieve efficient traffic hand-off.

Unfortunately operators will try to pursue the Tellabs strategy of providing "intelligence". Users don't think that strategies designed to increase the price of a service and reduce flexibility and choice are "intelligent".

Novae Meridianae Demetae Dexter delenda est

Cloud Convergence Council

IT vendors CA Technologies, Catalyst Telecom,
The Cloud Convergence Council has been set up by Channel Partners which describes itself as "the leader in providing news and analysis to indirect sales channels serving the communications industry. It is the unrivaled resource for resellers, aggregators, agents, brokers, VARs, systems integrators, interconnects and dealers that provide network-based communications and computing services, associated CPE and applications as well as managed and professional services" and The 2112 Group "an independent consultancy specializing in technology and channel communications and intelligence services. The 2112 Group was founded on the principle of community collaboration and "crowdsourcing" solutions to complex business and technology problems."

Their blog asserts;

What is for certain is that everyone is moving toward a cloud delivery model, further blurring the lines between the Telecom and IT worlds – the vendors and their channels. I am not suggesting the cloud will create homogeneity among channel partners – differentiation is a key – but their sandboxes certainly are less discrete.

With this in mind[the Council assembles] thought leaders from the Telecom and IT industries – both vendors and their partners – to address some of the big questions around evolving business models to narrow questions around reconciling terminology.

This is really just a conference event and the "sponsors" (CA Technologies, Juniper Networks, PGi, Catalyst Telecom and Motorola Solutions) are really just that - people paying for advertising rights.

Juniper did have a slightly different spin;

The Cloud Convergence Council is a newly-formed community of telecom and IT vendors and their channel partners coming together to deliberate the issues and opportunities that come with the convergence of the two channels in the cloud. The inaugural council will be introduced and share its initial work and goals in a roundtable discussion at the conference.

They were the only sponsor that seems to have leveraged the "news" opportunity.

So what is this about? Well, its a convergence story because no one is sure whether the cloud is an IT or a Telecoms sale. Its just if you do go to the cloud you need more and better comms and you need to buy a service from someone.

But what's still missing is a batter handle on what the "cloud" is. Some people emphasise the cloud as a processing space - but that seems about as dumb as ditching your LAN to install an old IBM SNA network with dumb terminals. Others think that its all about secure storage.

Like so very much of the 21st Century the cloud is probably best defined as "collaborative". It obviously supports collaboration across teams and worksites. But it also really is about collaboration between local processing and storage and remote processing and storage.

But that won't come out of the Cloud Convergence Council - they just want to work out "channel" arrangements to flog it!

Novae Meridianae Demetae Dexter delenda est

Economics and economists

Ross Gittins has today in the SMH stated the obvious that economists' views are more political than they admit. Part of this is bound in the fact that their view of methodology (the last of the positivists) is shielded in error.

What he does is makes an excellent point that standard classical economics has no place for Government spending because the economy is only made up of the choices of firms and individuals. So all the market solutions revolve around individual choices.

The theory makes a concession for the need for Government to create and enforce property rights, but gives no explanation of how such an entity can even evolve out of a market economy. (In reality the causal relationship is the reverse, that government - usually authoritarian - exists first and creates property rights and from that a market economy can evolve).

This circularity is not unusual for economists. They define the problem as one of choice, define efficiency on a principle of choice (there is no trade which makes one person better off and no one worse off), and then prove that markets are efficient. Wow. If I design the system so people can choose, the system allows people to choose.

A good example of the misapplication of the classical model was in an article on the same page by Stuart Washington. This was about his mate's purchase of a standard fan for $8.

He was prepared to concede the product might have been a "loss leader" but really concluded that the price meant we were undervaluing resources like metals and oil. He says;

My argument is that the floor fan is an indicator of a world in which certain inputs are not being accurately priced. I don't think the metals that went into the fan were priced properly. Nor were the petrochemicals.

No evidence is advanced for this. The reality I think is that world commodity prices are still quite high, not low. What he misses is a whole range of other possible sources of the low price being a price below the (average) cost of production.

The first is that this is the end of summer - a time when retailers and manufacturers want to eliminate stocks of unused product. At the specific level it is cheaper to sell below cost than to pay the cost of working capital to have the item wait for next summer. This can be compounded if there is a decision to replace the model of fan before the next season.

More generally there is a temporal price discrimination - you charge well above cost earlier in the season when demand is stable and high, then low at the end when demand is fluctuating but low.

Finally there is the possibility that the product is really a dud.

There is no reason to conclude the inputs are mispriced, just that final prices don't reflect input prices the way classical theory tells us.

Mind you - I find $44 for a multi-function colour inkjet printer at Dick Smith really low too. But that's a different story. The "business" is in selling you the ink cartridges....just like "free" mobile phones.

Novae Meridianae Demetae Dexter delenda est

Yasi through time and space

Beautiful - thanks to Weather Chaser and Crikey

Drivel from Jeffrey A. Eisenach

Phil Burgess' favourite consultant, Jeffrey A. Eisenach, makes a return today in the Oz. Mind you last time he was backing Telstra's FTTN plan and telling us the alternative was the Optus HFC.

Memo to all US consultants - we don't listen to you anymore - especially on the virtues of private enterprise and free markets. Telcos love "three letter acronyms". I have one for you all - GFC.

The choice is not 4G wireless or fibre, it is both and capacity demands will require it. The Australian Government will be releasing both 140 MHz of 2.5 GHz spectrum and 70 MHz of 700 MHz (the Digital Dividend) in 2012. Australia already has a 4G (WiMax) network in Perth and parts of Sydney and Melbourne on the 2.3 GHz spectrum.

Do swe need a new high speed access network? Yes. Telstra has been telling us so since 2005.

Is fibre the right solution? Yes? Its upgrade path is faster and further than wireless. Just remember Cooper's Law tells us the capacity of radio systems doubles every 2.5 years but Moore's Law tells us chip capability doubles every 18 months.

Can the Oz please spare us this drivel?

Novae Meridianae Demetae Dexter delenda est

Friday, February 04, 2011

Digital Television and e-waste

I finally got with the 21st century just after Christmas and replaced the really big CRT TV we bought in 2000 with a lovely LCD LED job. Just over $1000 for the new telly, and so much nicer and easier to move.

I did the right thing and manhandled the old one down to Planet Green. The bugger weighed 54kg, which meant at $1.50 per kg I paid $81 to get rid of it.

Then last weekend was clean-up in our area. Lots of people had put out their old CRT TVs. I was pleased to see the Council workers left them behind...but most are still littering the streets.

It is nice for Minister Conroy to tell us the Government has helped 25,000 households to help them get digital television. This scheme just gets them a set-top box not replace the TV.

But where is the Government's bigger plan for e-waste? The mobile industry has done its bit for a decade with Mobile Muster but in reality we should be well past this.

Why shouldn't I be able to leave e-waste at my local State Waste Transfer Station? Why indeed shouldn't it be free to leave there just like paper and glass? The Government collects 9% of the final price to me for every piece of this stuff I buy.

While digital TV is creating a current surge, the issue is only growing with household PCs and notebooks.

It is time someone had a plan.

Novae Meridianae Demetae Dexter delenda est