A new era for NBN Co pricing

Australia's National Broadband Network is not currently what it was planned to be. I was for many years up to my eyeballs in the policy issues. I was part of the discussions that initiated Labor thinking that structural reform of the industry should be achieved when a new access network was built (a proposition advanced at a Competitive Carriers Coalition and AAPT seminar in 2004). I was part of the group devising an alternative to Telstra's proposition for an access holiday for a new network. I was bizarrely part of attempts by a wireless operator to pitch fixed wireless as an alternative technology in parts f metropolitan areas (proof that as an employee I can pitch thgings I don't believe in...my employer at the time stuffed it up royally by trying to go to Rudd directly bypassing Conroy under the mistaken belief that Rudd was a leader and a decision maker).

I watched in horror as NBN Co started negotiating on its acceess terms with retailers in a private consultation in which only the retailers participated.  I watched in horror as NBN Co would not include quality of service in those discussions.

Later I was recruited into Stephen Conroy's office as special adviser and speech writer. I again watched in horror as NBN Co struggled to develop its access undertaking in a consultative manner, and equally in horror as  telco regulatory managers expressed the view that they wanted the ACCC to be in the centre as a price setter rather than price approver (I am looking at you Optus). I wound up in a shouting match with Bill Shorten's office and John McTiernan in (Gillard's) PMO over the response to the Penrith asbestos incident and Shorten's repeat of a demand that Telstra remediate its entire network to remove all copper. The roll-out timetable could not recover from the six months of suspension of operations that this approach resulted in. 

I then watched as NBN Co management released a deeply flawed strategic review that pleased its new shareholding ministers but ignored the documented improvements already made to the fibre roll-out. I think I cried when the coalition adopted the Multi-Technology Mix (or Malcolm Turnbull's Mess) and thereby trashed the revenue model (see footnote 1).

We are where we are. NBN Co's pricing model has largely been shelved as repeated special offers have applied discounts - mostly to the CVC component. NBN Co is apparently looking at 'soft caps' on  excess usage charges and the ACCC has jumped on this saying it welcomes NBN Co's announcement that a 'new approach' to the regulation of its access pricing is needed (see footnote 2). In a most extraordinary statement the ACCC Chair makes a play to be at the centre of the pricing arrangements, saying: 

Until now, access pricing has largely been developed by NBN Co, so the prospect of bringing this work squarely within the remit of a special access undertaking with effective ACCC oversight is a very significant change. This is the start of a long reform process that would effectively put NBN pricing under the ACCC’s regulatory umbrella, and would improve access pricing for NBN Co customers.

It is extraordinary because NBN Co pricing already is under the ACCC's regulatory umbrella - it is just that the umbrella specifies a maximum price, not the exact price. 

The more frustrating part is the telcos complaining about a margin squeeze. They make the point that consumers are used to declining telco costs and that an increasing NBN Co ARPU is inconsistent with that. However, the pricing behaviour is such that telcos have been reducing retail prices at a faster rate since the NBN came into being than they did in the period of competition with an integrated Telstra after 1991. The chart below shows the real telecommunications price index from CPI data and trend lines for three separate periods (see footnote 3). 

NBN Co needs to change its approach entirely. They need to be working with retailers to identify how they can design premium products that retailers can command premium prices for. This is hard given the MTM but not impossible. Now that almost every copper pair is actually being used for an NBN service a service qualification can be performed, and strategies to provide improvements developed so that retailers can confidently offer guaranteed higher speeds. Getting on with remediating the network to at least fibre to the kerb will also help.

NBN Co needs to consider all options for restructuring prices - including if need be the original 14 POI model - noting that recovering its costs at a WACC of the risk free rate plus 3% (or whatever the arbitrary amount chosen is) is a requirement. 

Multi-lateral price design isn't impossible - it is essential. 

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Footnote 1: It is hilarious in hindsight to re-read one justification for reducing the revenue forecasts (i.e. appetite for higher speed tears and the planned multicast service) that the NBN Co plan had overestimated Australian interest in streaming services. 

Footnote 2: The ACCC Chair Rod Sims is normally quite adament that an 'access price' only relates to the price an integrated firm charges for access to a bottleneck facility that is provided to firms with which the regulated firm competes in downstream markets. Technically as a structurally separated entity NBN Co is just charging a price - it isn't an access price. I understand the difficulty that the law is still drafted referring to access undertakings etc.

Footnote 3: This data is for the aggregate of services and it might be thought that mobile services are bringing this down. But telcos made the same complaint before the introduction of 4G in mobiles - that the high capital cost of spectrum and equipment would be hard to recover from consumers. The simple reality is that CEO's and CFO's like bigger profit margins and will do anything to find them. The regulatory team has long been the go to group. 

Tangentially related footnote: In the context this week of the Health Minister announcing the continuation of the tele-health arrangements for another six months and that the Government and stakeholders would now work to make it a permanent model. Pathetically tele-health is mostly nothing more than telephone conversations. 

Tele-health was one of the applications identified for the NBN and featured prominently in the ALP's National Digital Economy Strategy. The Coalition Policy on the Digital Economy in 2013 said:

Many of the aspirations contained in the updated NDES are outside the scope of this policy because they fall under other portfolios (for example expanding the Medicare Benefits Schedule to include remotely delivered services or changing the taxation of employee shares), are largely the responsibility of the States and Territories (for example the National Plan to Fight Cybercrime), or are both (for example adding ICT to the National Curriculum in schools). 

The woefully inadequate state of tele-health is in dicative of the failure of the coalition under all of Abbott, Turnbull and Morrison to take both Broadband and the Digital Economy seriously. 

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Life is what happens while you are busy making other plans JWL

Politicians and accusations

Unfortunately for Christian Porter my views on his statement today are tainted by the circumstances around Tony Abbott and the accusation that he threw a punch at Barabara Ramjan. Abbott's first comment was that it did not sound like him, but he followed it up with a categorical denial.

We know that Ramjan was successful in a defamation action against News Corp. An affidavit was provided by a third party witness to the event. That is, the event did happen and was witnessed.

Now it is highly unlikely that anyone witnessed the event in question in the Porter matter. We do have the statements of Jo Dyer on the ABC last night which are no more than heresay. But it does appear that there were near contemporaneous discussion of the alleged victim's claims. With her passing these are the closest that can be found to 'evidence.' We have another friend reporting a consistency in the telling of the events by the aleged victim. 

There have also been suggestions in the media of detailed diaries and other evidence kept by the alleged victime.  

Yet the NSW Police seem to have terminated their investigation simply on the basis that the passing of the complainant meant that there was no chance of a prosecution. Yet they don't seem to have even spoken to the alleged perpetrator. All those lovely episodes of crime dramas where skillful interogation is used to test a person's recollection are apparently not just fiction, they are fantasy.

The grilling by the media was not forensic, and I genuinely feel for the Minister who is clearly stressed by the events (though not dead like the alleged victim). There are all sorts of other explanations, including that the victim has recalled the wrong perpetrator. But it does beggar belief that when the Minister heard the whispers in November, and that those whispers seemed to have been pretty significant, he did nothing. I understand the alleged victim has already died in June, yet the Minister seems to have had no interest in sorting out the matter. He should have known that once the whispers started they would snowball.

The real villain though still seems to be the Prime Minister, whose stonewalling only made matters worse for the Minister. There never was a scenario where this allegation went away without the Minister having to speak...so the PM should have brought that about. The PM didn't even read the letters. When he sought the assurance of the Minister about the matter the Minister was provided with none of the details.

The Minister can't recollect when he and the alleged victim wewre together, what happened on the night of a dinner and dancing after which the incident was supposed to have occurred. He can recall, however, the matter of being taught how to iron a shirt. This suggests to me the presence of alcohol affecting recollections - and this could be the alleged victim's just as much as the Minister's.

There is no basis for Porter to be standing down as AG. There should not have been such a protracted period creating pressure on him. But unfortunately, the matter is probably not over. And the PM only has himself and his office to blame (and I suggest his mate whose bins he brings in occassionally). 

To be clear, I am making no accusation against Porter. I genuinely feel sorry for him. I am also making no accusation that the NSW Police investigation has been politically interfered with. I am just gob-smacked about how badly the PM and PMO have managed the matter (which includes the fact that while Porter showed great grace to reflect on the events relating to claims against Bill Shorten, others in the party seem to be trying to revive them as a counterfoil).

Finally, the one lesson we keep learning is that victims of sexual abuse need to be supported to report the crime immediately. 

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Life is what happens while you are busy making other plans JWL

Online Safety meets Classification

The Federal Government has introduced a new Online Safety Bill, that is evoking memories of Stpehen Conroy's ill-fated attempts at introducing a mandatory internet filter. While some might see the Bill as milder because it only introduces a take-down regime rather than a mandatory filter, that is false comfort because it extends far beyond the intent of Labor's scheme. 

First some history. As Minister Senator Conroy was only proposing an internet filter on content that could not be distributed in any other form in Australia. Material that is rated RC (Refused Classification) by the Classification Board is this material. Conroy did not intend that it extended to anything other than that. He was not attempting to impose a higher standard for online content than for other content.

However, the National Classification Code has a very clear gap between what they describe as RC and what they describe as X 18+. There was a particular deficiency in relation to computer games where the guidelines did not include an X 18+ category. The consequence was that an internet filter would capture a much greater range of content than the ALP policy proposed.

The ALP referred the matter to the Australian Law Reform Commission and the report was tabled in 2012. In a section of the report headed 'The need for fundamental reform' the ALRC observed:

2.69 The ALRC considers the major principles that have informed media classification in Australia—such as balancing the rights of adults to make informed media choices with the protection of children—to continue to be relevant. However, the framework that underpins these principles is in need of reform. 

2.70 In the context of media convergence, there is a need to develop a framework that focuses upon media content rather than delivery platforms, and which can be adaptive to innovations in media platforms, services and content. Failure to do so is likely to disadvantage Australian digital content industries in a highly competitive global media environment. 

2.71 The current classification framework is highly fragmented, with different guidelines and regulatory arrangements for different media platforms, and unclear lines of administrative responsibility. The relationship between the Commonwealth, states and territories in particular requires significant reorganisation, and there is a case for a new Act governing all media content classification, as well as revised regulatory arrangements. 

2.72 The costs and regulatory burden of the current classification framework align poorly to community standards and expectations. There is too much top-down regulation of some media content and platforms, while regulatory requirements are unclear in relation to other media. 

The ALRC identified the classification gap above, and recommended that the classification scheme have a clearly defined category of Prohibited Content. It also proposed a fundamental reform of classification procedures. 

Unfortunately, at that time the Classification Act was legislation administered by the Attorney-General. The AG's office in response to the ALRC report prepared a proposal for the States and Territories to adopt the title of Prohibited for RC without making any of the other changes. It took some work to explain the AGs that this was not the intent of the ALRC report.

However,  the Classification Act is now included in the administered legislation of the Department of Infrastructure, Transport, Regional Development and Communications. That means the same Minister introducing the Online Safety Bill is the Minister who could and should be acting on the ALRC recommendations.

So that is the first issue with the Bill. The second, and just as troublesome, is that the Bill also proposes that all X18 + and R18 + material should be subject to take down notices unless they are subject to a restricted access system. Horrifyingly, restricted access systems are defined under s108 of the Bill, where we learn that the e-Safety Commissioner can 'declare that a specified access-control system is a restricted access system in relation to material for the purposes of this Act.' 

Similarly the Bill is extremely vague in terms of exactly what is or isn't covered because in relation to all kinds of content it adds that where the content has not been classified it is subject to restriction if it would 'be likely that the Classification Board' would give it the classification. Effectively this empowers the e-Safety Commissioner to become a secondary Classification Board.

The Government needs to rethink this legislation. This is more restrictive than anything the ALP contemplated and goes well beyond what ordinary citizens expect. 

The idea of have restricted access systems for content is also not objectionable, but it needs to be implemented in such a way that any user can access the content through their arrangements with their service provider. If I want to see an R 18+ film I just have to demonstrate to the theatre owner that I am over 18, I don't need to buy a ticket to the cinema and then separately demonstrate to the content maker that I am over 18.

Of course, ideally, global comms Ministers could have got together with the Internet Community and added a classification field to the DNS. That would have then logically created the ability for clear access controlo to websites based on the category of their content (and to be clear, even with user generated content on sites like Facebook, Twitter and YouTube, ultimately the content on any domain is controlled by the owner of the domain). 

It is inexcusable that after nearly eight years in Government, the best that the LNP can come up with is an approach that ignores the recommendations of the ALRC and is potentially more restrictive than anything that Stephen Conrioy's giant internet filter was going to cover.

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Life is what happens while you are busy making other plans JWL

News organisations and digital platforms

Does anyone remember the days when the music industry used to complain about the internet and the 'illegal' downloading of songs? Do we remember the movie and television production companies and their attempts to make Internet Service Providers (ISPs) responsible for blocking access to video sharing sites?

In both cases the response of the internet community was 'don't blame us - adjust your business model.' I wasn't always as convinced about the purity of the motives of the ISPs but their message was right. 

Since then we've seen the growth of both legitimate music digital sales (especially iTunes) and music streaming services (Amazon Music, Spotify, Pandora). The music industry is now making more money from legitimate streaming than they used to from physical media sales. The chart below are statistics from the Recording Industry Association of America. This is a website that is littered with discussions of the cost of 'piracy' right up till about 2014. 

Movie and television content has gone the same way with numerous services offering both download and streaming content - some becoming so successful that they are commissioning content (eg Netflix and Amazon Prime) without the need for a mandate by anyone to feed evenue back into the creative industries.

Now we are hearing an issue about news media and the internet and somehow or other the digital platforms are getting a free ride on the back of media companies. Having tried to make sense of the ACCC's Digital Media Inquiry report on this (Chapter 5). There seem to be a number of business models all being wrapped up under one heading.

Let's deal with the first - what we can simply call a 'news referral service.' This is where either the search engine functionality has matched a news item to the googled term. I always find I get more news sites for a search than I do for the original content. But none of this gives me the story - it might give me the lede which I might be satisfied with but not the story. For almost anything from the print media I then hit a paywall. And the two major print publishers in Australia (Nine and News) only have a business model where to read the story I have to buy a subscription or go and buy the physical paper. There is no option provided to just buy a copy of the story or that day's paper...both of which would be a revenue stream and a targeted advertising opportunity. 

The idea that these payments (we used to call them micropayments) would be hard to collect is nonsense...just look mat how Apple's iTunes does it with a charge issued a few days after a purchase that enables them to bill you for everything you bought in the last week. Clever business models would choose the price points so they don't discourage subscriptions, and that identify consumers who would be better off with a subscription. 

Other models are actual 'news aggregation' services. Now I certainly have a preference for Australian news and would think a domestic news aggregation service makes sense. Rather than relying on one of the 'digital platforms' - here primarily Google and Apple - to provide that functionality there is absolutely nothing (except potentially the ACCC) preventing the Australian publishers getting together and building their own service. Given that the news organisations recently dissolved Australian Associated Press - the long running content partnership - it might be asking too much to see them collaborate on a distribution model. 

Instead of putting pressure on the news businesses to improve their digital strategies the ACCC and Government are continuing the long running strategy of protecting these businesses. 

Note: Many years ago, c1995-6, I was the Account Director for the media portfolio at Telstra. At the time we had just announced the On Australia JV with Microsoft which was to be a walled garden online service - not unlike the failed Viatel but using more modern comms technologies. The IT head at Fairfax asked me to talk to him about it because they needed to do something 'online.' 

The folks from Telstra Multimedia I took to talk to him said don't use On Australia, look at Mosaic - one of the first web browsers that spawned Netscape Navigator and was purchased by Microsoft as the foundation of Internet Explorer. Fairfax didn't take our advice and instead bought some online service that was used by Librarians. They came so close to getting the decision right....

 

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Life is what happens while you are busy making other plans JWL