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
Showing posts with label ACCC. Show all posts
Showing posts with label ACCC. Show all posts
Tuesday, October 25, 2011
Friday, October 14, 2011
Asher's foolishness
So Allan Asher has been caught out providing Greens Senators with questions to ask him at estimates. The action has been called unwise and grubby.
It has been met with calls for explanation or resignation.
I agree with all those comments. Asher himself said;
I chose this unorthodox approach to bring my concerns to the attention of the Parliament and the public. I would welcome a discussion regarding the establishment of a parliamentary committee or some other accountability mechanism to specifically review my work and with whom I could raise issues of concern without compromise to the independence of my office.
Therein lies the particular issue. We have a number of statutory offices that are not subject to Ministerial direction like a Department. The ACCC, ACMA and ASIC are such bodies. Minister's can't really be "held to account" for administration in some ways by pleading the agency's independence.
Asher is not the first head of an agency to find budgets an issue. The ACMA utilised a number of channels to make submissions about the impact of Tanner's "efficiency dividend" on small agencies. There are routes other than feeding questions to Senators.
However, there does appear to be merit in creating more direct parliamentary oversight of agencies that are created to be independent of the Executive.
That said, it is hard to understand why Asher was not simply patient enough to include the issues in his annual report.
Novae Meridianae Demetae Dexter delenda est
It has been met with calls for explanation or resignation.
I agree with all those comments. Asher himself said;
I chose this unorthodox approach to bring my concerns to the attention of the Parliament and the public. I would welcome a discussion regarding the establishment of a parliamentary committee or some other accountability mechanism to specifically review my work and with whom I could raise issues of concern without compromise to the independence of my office.
Therein lies the particular issue. We have a number of statutory offices that are not subject to Ministerial direction like a Department. The ACCC, ACMA and ASIC are such bodies. Minister's can't really be "held to account" for administration in some ways by pleading the agency's independence.
Asher is not the first head of an agency to find budgets an issue. The ACMA utilised a number of channels to make submissions about the impact of Tanner's "efficiency dividend" on small agencies. There are routes other than feeding questions to Senators.
However, there does appear to be merit in creating more direct parliamentary oversight of agencies that are created to be independent of the Executive.
That said, it is hard to understand why Asher was not simply patient enough to include the issues in his annual report.
Novae Meridianae Demetae Dexter delenda est
Thursday, October 06, 2011
Another note on wireless
Some commentators noting the popularity of wireless devices err in confusing the use of handheld devices with actual mobility.
I made this point briefly in a submission yesterday to the ACCC consideration of the Telstra SSU. I was using download data to demonstrate how little the download is on wireless data devices compared to fixed.
Today I noted a week+ old story that reported the lessons learnt by Deutsche Telecom as recounted by their CTO.
It's more a wireless experience than a true mobile experience. In reality they use mobile handsets for fixed usage.
In addition, 80 percent of people's data traffic comes from just three cell phone towers--one near home, one near work, and one someplace in between.
Just to drive the point home about wireless;
Deutsche Telekom also considered what it would take to completely satisfy the European Union's goal of bringing broadband at 100 megabits per second--enough for Internet, phone, and TV data--to customers in a large urban area without using fixed lines. The upshot, using Berlin as a test: it's not practical.
A company would need communication stations every 0.009 square kilometers, he said. My quick math, based on Wikipedia's judgment that Berlin covers about 892 square kilometers, is that more than 99,000 towers would be needed.
Novae Meridianae Demetae Dexter delenda est
I made this point briefly in a submission yesterday to the ACCC consideration of the Telstra SSU. I was using download data to demonstrate how little the download is on wireless data devices compared to fixed.
Today I noted a week+ old story that reported the lessons learnt by Deutsche Telecom as recounted by their CTO.
It's more a wireless experience than a true mobile experience. In reality they use mobile handsets for fixed usage.
In addition, 80 percent of people's data traffic comes from just three cell phone towers--one near home, one near work, and one someplace in between.
Just to drive the point home about wireless;
Deutsche Telekom also considered what it would take to completely satisfy the European Union's goal of bringing broadband at 100 megabits per second--enough for Internet, phone, and TV data--to customers in a large urban area without using fixed lines. The upshot, using Berlin as a test: it's not practical.
A company would need communication stations every 0.009 square kilometers, he said. My quick math, based on Wikipedia's judgment that Berlin covers about 892 square kilometers, is that more than 99,000 towers would be needed.
Novae Meridianae Demetae Dexter delenda est
Wednesday, September 28, 2011
New statistics - old adage
As I foreshadowed the ABS has today released the Internet Activity in Australia data that updates us a year on the ACCC report released last week.
Not that you'd know immediately from the media release which was titled "Mobile wireless connections more popular than DSL". This raises the important question of what we mean by "more popular". What they go on to say is there are now more wireless broadband services than DSL.
The graph they provide on their highlights page is a version of the proportions of internet connections by technology. Mine appears below.
As a proportion DSL looks like it is a technology the use of which is declining. The better picture is obtained by a graph of the actual service numbers by technology, shown below.
Indeed there are more wireless services than DSL, but not actually more than fixed when the 912 thousand cable and fibre services are considered. These are included in Other in the graph - which includes the 106 thousand satellite services. Interestingly both satellite and cable numbers declined over the last half year while DSL numbers continued to increase.
But popularity implies use not just existence. And it is here that the information noted with such relish in the ACCC's report becomes important.
The amount of data downloaded per service (the data is all data for the preceding three months) continues to rise rapidly for fixed broadband services but is relatively static for wireless. To put it into overall context - 254,947 terabytes were downloaded by fixed customers, while only 19,149 terabytes were downloaded by wireless.
I know which I would choose to define as popular.
Finally for this post I continue to wonder about the veracity of the ABS statistic. It is derived from data provided by ISPs, but the latest release has for the irst time in two and a half years revealed the number of ISPs by size category with a total of 421. The TIO counted 205 members as straight ISPs and a further 405 as Telephone and Internet Service Providers as at 1 January 2011.
I want to understand the source of that discrepancy.
Novae Meridianae Demetae Dexter delenda est
Not that you'd know immediately from the media release which was titled "Mobile wireless connections more popular than DSL". This raises the important question of what we mean by "more popular". What they go on to say is there are now more wireless broadband services than DSL.
The graph they provide on their highlights page is a version of the proportions of internet connections by technology. Mine appears below.
As a proportion DSL looks like it is a technology the use of which is declining. The better picture is obtained by a graph of the actual service numbers by technology, shown below.
Indeed there are more wireless services than DSL, but not actually more than fixed when the 912 thousand cable and fibre services are considered. These are included in Other in the graph - which includes the 106 thousand satellite services. Interestingly both satellite and cable numbers declined over the last half year while DSL numbers continued to increase.
But popularity implies use not just existence. And it is here that the information noted with such relish in the ACCC's report becomes important.
The amount of data downloaded per service (the data is all data for the preceding three months) continues to rise rapidly for fixed broadband services but is relatively static for wireless. To put it into overall context - 254,947 terabytes were downloaded by fixed customers, while only 19,149 terabytes were downloaded by wireless.
I know which I would choose to define as popular.
Finally for this post I continue to wonder about the veracity of the ABS statistic. It is derived from data provided by ISPs, but the latest release has for the irst time in two and a half years revealed the number of ISPs by size category with a total of 421. The TIO counted 205 members as straight ISPs and a further 405 as Telephone and Internet Service Providers as at 1 January 2011.
I want to understand the source of that discrepancy.
Novae Meridianae Demetae Dexter delenda est
Josh Gans sets the challenge
Joshua Gans seems very pleased that his whole interview with Alan Jones went to air.
He made a point that no submission to the ACCC has said "Gans and Hausman are idiots". That is true - my comments thus far have been reserved for my iTnews column titled When smart people say dumb things.
Meanwhile other submissions in the same proceedings are reported to claim that Telstra's separation proposals do not go far enough.
It is an unfortunate fact for Optus that there is such a thing as the public record. The fact that Telstra's structural separation is progressive over the life of the NBN deployment is not new; it is a consequence of the legislative prescription.
To the Senate committee inquiry into that Bill Optus submitted;
If implemented in its present form, Optus considers that the reform package will provide the foundation for stronger competition to emerge in the fixed line sector.
The Competitive Carriers Coalition was at least alert to the issue, but recognised the difficulty of concluding both a functional and structural separation. They submitted;
The CCC suggests that the ACCC be given guidance that any undertakings show how the management of Telstra’s wholesale business will be organized to remove incentives to iscriminate during the period of a staged separation, and to that the guidance detail certain minimum requirements.
However, the facts as I understand them is that the legislation was not so amended.
Meanwhile, I'm really looking forward to round 2 of Jones and Gans. Jones invited Gans to agree that the ACCC was an inadequate regulator as it hadn't acted on the Coles/Woolies duopoloy nor "shop-a-dockets". I suspect Gans' view here is closer to the ACCC than Jones - though I also wonder if anyone has explained the Metcash decision to Jones.
Note: I must admit to finding a certain irony to the joint submission by Professors Hausman and Gans. I had an "altercation" in a previous life with Hausman. He had written a submission for Optus on regulation of mobile terminating access. I commissioned Josh Gans to write a report on the Hausman submission.
Needless to say he did an excellent job....so much so that Professor Hausman complained to my parent company about "friendly fire" as he had written a very similar report for them in New Zealand. And yes, the Commerce Commission did in the end use the report I commissioned from Josh Gans to critique my parent company's position.
The point is not so much that it is now strange to see the two writing a submission together as that matters of economics are, indeed, things on which even great minds can differ.
Novae Meridianae Demetae Dexter delenda est
He made a point that no submission to the ACCC has said "Gans and Hausman are idiots". That is true - my comments thus far have been reserved for my iTnews column titled When smart people say dumb things.
Meanwhile other submissions in the same proceedings are reported to claim that Telstra's separation proposals do not go far enough.
It is an unfortunate fact for Optus that there is such a thing as the public record. The fact that Telstra's structural separation is progressive over the life of the NBN deployment is not new; it is a consequence of the legislative prescription.
To the Senate committee inquiry into that Bill Optus submitted;
If implemented in its present form, Optus considers that the reform package will provide the foundation for stronger competition to emerge in the fixed line sector.
The Competitive Carriers Coalition was at least alert to the issue, but recognised the difficulty of concluding both a functional and structural separation. They submitted;
The CCC suggests that the ACCC be given guidance that any undertakings show how the management of Telstra’s wholesale business will be organized to remove incentives to iscriminate during the period of a staged separation, and to that the guidance detail certain minimum requirements.
However, the facts as I understand them is that the legislation was not so amended.
Meanwhile, I'm really looking forward to round 2 of Jones and Gans. Jones invited Gans to agree that the ACCC was an inadequate regulator as it hadn't acted on the Coles/Woolies duopoloy nor "shop-a-dockets". I suspect Gans' view here is closer to the ACCC than Jones - though I also wonder if anyone has explained the Metcash decision to Jones.
Note: I must admit to finding a certain irony to the joint submission by Professors Hausman and Gans. I had an "altercation" in a previous life with Hausman. He had written a submission for Optus on regulation of mobile terminating access. I commissioned Josh Gans to write a report on the Hausman submission.
Needless to say he did an excellent job....so much so that Professor Hausman complained to my parent company about "friendly fire" as he had written a very similar report for them in New Zealand. And yes, the Commerce Commission did in the end use the report I commissioned from Josh Gans to critique my parent company's position.
The point is not so much that it is now strange to see the two writing a submission together as that matters of economics are, indeed, things on which even great minds can differ.
Novae Meridianae Demetae Dexter delenda est
Tuesday, September 27, 2011
Life imitates art
The ACCC has prosecuted a group of firms for selling ads in magazines that were never to be produced.
That business model was part of Wayne Hope's ABC TV comedy Very Small Business.
I wonder which came first - the satire or the actual business?
Novae Meridianae Demetae Dexter delenda est
That business model was part of Wayne Hope's ABC TV comedy Very Small Business.
I wonder which came first - the satire or the actual business?
Novae Meridianae Demetae Dexter delenda est
Monday, September 26, 2011
The re-reporting of statistics
The ACCC for some reason is not particularly quick at getting its reports on telecommunications out.
Last week it announced that its 2009-10 Telecommunications reports had been tabled in the Parliament.
Why the ACCC needs fifteen months from the end of the year to get this out hasn't been explained. They do have to do some work on price indices using data they can only obtain at 30 June, but it seems a very long time. Can you imagine running a business with data that is over a year old?
But the stunning part is the coverage. The ACCC's release said;
Subscription numbers for both fixed and mobile services suggest that while mobile take-up continues to grow, this is not necessarily at the cost of fixed line services. ... Fixed broadband remains the dominant technology for downloading data, accounting for 91 per cent of data volumes.
This download information was the bit reported by the SMH, ZDnet and iTWire.
However, the ACCC report is not new data - it is simply repeating and interpreting ABS data. Furthermore they are reporting only the June 2010 data while the ABS website released December data in April and advises the June 2011 data will be released in two days time - September 28.
For the record the per service download data and the total of fixed vs wireless broadband is shown in the chart below.
This demonstrates the core point that while wireless is popular it is mostly as an auxilliary not main service.
I look forward to updating the graph on Wednesday!!!!!
Novae Meridianae Demetae Dexter delenda est
Last week it announced that its 2009-10 Telecommunications reports had been tabled in the Parliament.
Why the ACCC needs fifteen months from the end of the year to get this out hasn't been explained. They do have to do some work on price indices using data they can only obtain at 30 June, but it seems a very long time. Can you imagine running a business with data that is over a year old?
But the stunning part is the coverage. The ACCC's release said;
Subscription numbers for both fixed and mobile services suggest that while mobile take-up continues to grow, this is not necessarily at the cost of fixed line services. ... Fixed broadband remains the dominant technology for downloading data, accounting for 91 per cent of data volumes.
This download information was the bit reported by the SMH, ZDnet and iTWire.
However, the ACCC report is not new data - it is simply repeating and interpreting ABS data. Furthermore they are reporting only the June 2010 data while the ABS website released December data in April and advises the June 2011 data will be released in two days time - September 28.
For the record the per service download data and the total of fixed vs wireless broadband is shown in the chart below.
This demonstrates the core point that while wireless is popular it is mostly as an auxilliary not main service.
I look forward to updating the graph on Wednesday!!!!!
Novae Meridianae Demetae Dexter delenda est
Tuesday, September 06, 2011
"reflective of a lazy regulatory attitude" AAPT and NBN Co
I am generally an NBN fan. I am a fan of the concept of an FTTN network, I am a fan of the structural separation it delivers and I am a fan of the idea of a Government enterprise delivering it.
There is no real foundation for the perception that Government enterprises are less efficient and effective than private sector ones. A colleague has kindly recently made some observations on submissions to the Domestic Transmission Capacity service FAD.
The first by private sector firm AAPT. The colleague described it as "a whole new level of pathetic" and said that the submissions in general were "reflective of a lazy regulatory attitude."
The second is by NBN Co. This is neatly described as "a metaphor for the entire organisation...5 pages with nothing on it, then 2.5 pages with very little of any substance on it...8 pages that could be condensed into 1 page." and adds "Wasting paper, wasting money..."
I do note however the reassuring words from NBN Co on the second page of their submission,
Environment
NBN Co asks that you consider the environment before printing this submission.
Going to my earlier comments about corporations losing the plot on communications. If you want to save the environment come up with document templates that do so. The cover detail could be on the same page as the bit with the notice, it didn't need an intentionally blank page and it didn't need the superflous colourful back page.
There is a longer story to write about what creates this environment, but in brief, we have reached that stage in a regulated industry wherein the regulatory process is now no longer strategic.
The logical move is a massive restructure of regulatory institutions. The structural separation has been used to allow people to assume their problems are over. The reality is they have only just begun, but have very little to do with NBN prices and everything to do with bundling.
Novae Meridianae Demetae Dexter delenda est
There is no real foundation for the perception that Government enterprises are less efficient and effective than private sector ones. A colleague has kindly recently made some observations on submissions to the Domestic Transmission Capacity service FAD.
The first by private sector firm AAPT. The colleague described it as "a whole new level of pathetic" and said that the submissions in general were "reflective of a lazy regulatory attitude."
The second is by NBN Co. This is neatly described as "a metaphor for the entire organisation...5 pages with nothing on it, then 2.5 pages with very little of any substance on it...8 pages that could be condensed into 1 page." and adds "Wasting paper, wasting money..."
I do note however the reassuring words from NBN Co on the second page of their submission,
Environment
NBN Co asks that you consider the environment before printing this submission.
Going to my earlier comments about corporations losing the plot on communications. If you want to save the environment come up with document templates that do so. The cover detail could be on the same page as the bit with the notice, it didn't need an intentionally blank page and it didn't need the superflous colourful back page.
There is a longer story to write about what creates this environment, but in brief, we have reached that stage in a regulated industry wherein the regulatory process is now no longer strategic.
The logical move is a massive restructure of regulatory institutions. The structural separation has been used to allow people to assume their problems are over. The reality is they have only just begun, but have very little to do with NBN prices and everything to do with bundling.
Novae Meridianae Demetae Dexter delenda est
Tuesday, August 30, 2011
Market structures
The Federal Court decision in the case of the etcash acquisition of Franklins raises some interesting questions.
The first is to note that the judgement is based on the question of the ACCC's definition of a market and the court's decision that both Woolworths and Coles are actually involved in the wholesale market. It also hinged on the delightful thing called the "counterfactual" which is what is the likely outcome if the merger is not approved.
Counterfactuals are little more than modern day prophecies with economists and merchant bankers playing the role of soothsayers.
But the decision that the acquisition will not substantially lessen competition in the wholesale market does not mean that the merger improves competition.
Indeed as Heinz asserted today the home brand "revolution" is what is killing competition, and there is not a thing the ACCC can do about it.
From a technical point of view Coles and Woolies are using their market power in retail to exercise power in the upstream manufacturing market. Neither has enough market power to fall foul of the misuse of market power test.
The Competition and Consumer Act is fundamentally broken as a tool of economic policy. The concepts of "market" and "market power" and of "competition" embodied in it are sufficiently weak that any competent lawyer can steer their way around them.
The solution perhaps lies in a different set of laws that look more like the access regime laws under which the ACCC can declare certain things to be markets and to have specific characteristics. This could include simple things as specifying indices of concentration (such as the HHI)above which it would be determined a market is not effectively competitive.
In passing I will note however that vertical arrangements are not always bad. The move by AAP into telecommunications as AAPT was good, but the move by Telstra into media via Foxtel is less so. (Note that I worked for AAPT long after that, and I was up to my eyeballs in trying to make the Foxtel deal happen).
But talking of AAP provides an excuse to note the closure of its NZ counterpart the New Zealand Press association since their biggest market, Australian media, now owns the local media!
I will be speaking about competition policy for the digital economy at this year's Communications Policy and Research Forum. I will also be discussing the change in corporate Australia's relationship with competition policy in a column on ATUG..
Novae Meridianae Demetae Dexter delenda est
The first is to note that the judgement is based on the question of the ACCC's definition of a market and the court's decision that both Woolworths and Coles are actually involved in the wholesale market. It also hinged on the delightful thing called the "counterfactual" which is what is the likely outcome if the merger is not approved.
Counterfactuals are little more than modern day prophecies with economists and merchant bankers playing the role of soothsayers.
But the decision that the acquisition will not substantially lessen competition in the wholesale market does not mean that the merger improves competition.
Indeed as Heinz asserted today the home brand "revolution" is what is killing competition, and there is not a thing the ACCC can do about it.
From a technical point of view Coles and Woolies are using their market power in retail to exercise power in the upstream manufacturing market. Neither has enough market power to fall foul of the misuse of market power test.
The Competition and Consumer Act is fundamentally broken as a tool of economic policy. The concepts of "market" and "market power" and of "competition" embodied in it are sufficiently weak that any competent lawyer can steer their way around them.
The solution perhaps lies in a different set of laws that look more like the access regime laws under which the ACCC can declare certain things to be markets and to have specific characteristics. This could include simple things as specifying indices of concentration (such as the HHI)above which it would be determined a market is not effectively competitive.
In passing I will note however that vertical arrangements are not always bad. The move by AAP into telecommunications as AAPT was good, but the move by Telstra into media via Foxtel is less so. (Note that I worked for AAPT long after that, and I was up to my eyeballs in trying to make the Foxtel deal happen).
But talking of AAP provides an excuse to note the closure of its NZ counterpart the New Zealand Press association since their biggest market, Australian media, now owns the local media!
I will be speaking about competition policy for the digital economy at this year's Communications Policy and Research Forum. I will also be discussing the change in corporate Australia's relationship with competition policy in a column on ATUG..
Novae Meridianae Demetae Dexter delenda est
Wednesday, June 29, 2011
Let's blame the lawyers
Electricity price rises are much discussed in Australia, but the underlying causes aren't.
Tom Parry in the Oz today is prepared to lay part of the blame on lawyers.
In an informative article he takes us on a journey through the introduction of regulated pricing (rather than prices being set politically)in NSW. The regime started as light touch and incentive based, where firms could benefit by "outperforming" the regulatory allowance for efficiency improvements.
The system now is still "building block" based but is now about the regulator "second guessing" the business. The lawyers get the blame for increasing resort to appeal processes primarily to argue "arcane elements of the cost of capital (the angels on pinheads of regulation) that are increasingly accounting for large increases in network charges."
We should care about this because the ACCC has been moving to use energy style building block and Rate of Return regulation for telecommunications pricing.
Two particular features are worth noting. The first is Parry's observation that "businesses are being accused of gold-plating." The second is the relevance of cost of capital.
"Gold-plating" in a regulatory sense is really about building to a higher standard than is prudent. Regulated firms may have an incentive for doing so because all costs are recovered and so may indulge in inefficient design. There is, however, a more specific version of inefficiency called the Averch-Johnson effect. This effect, named after a 1962 paper, is that a firm under Rate of Return regulation can increase its profit by (inefficiently) changing the mix of capital and labour (or capital and expenses).
A particular example is the approach taken by energy firms to metering. The efficient way to use comms is to buy services from a dedicated comms supplier achieving economies of scale. But the profit can be maximised by investing capital in a bespoke communications network. As the cost of smart metering is one of the drivers of increasing energy prices the significance of the A-J effect is large and growing.
The cost of capital is the second area of dispute. Regulatory lawyers have an interest in arguing up the cost of capital - despite, as Parry notes, "that a business will drive all of its costs, including efficient financing costs, so that customers can share in those benefits." In fact, this is a paradox in the theory of managerial capitalism - an efficient firm drives down all costs including financing costs, yet we are to believe it exists to "create shareholder value" - that is to maximise funding costs.
The saving grace in telecommunications might be that the firm that used to be the industry's biggest access provider (Telstra) is about to be its biggest access seeker. If they can marshal their impressive intellectual power to the problem we might find a better outcome. Unfortunately they too have allowed regulatory processes to be captured by lawyers rather than economists.
A good strategy for them would be to split their regulatory teams into "old world" and "new world" teams. They can mount arguments that the old world treatment is to be grandfathered and new rules apply for the new world. The challenge is to have the "new world" team focussed on strategy, economics and markets rather than the law.
Note: modified to make clear that the AJ effect is not a case of gold-plating but an inefficient mix of capital and expenditure.
Novae Meridianae Demetae Dexter delenda est
Tom Parry in the Oz today is prepared to lay part of the blame on lawyers.
In an informative article he takes us on a journey through the introduction of regulated pricing (rather than prices being set politically)in NSW. The regime started as light touch and incentive based, where firms could benefit by "outperforming" the regulatory allowance for efficiency improvements.
The system now is still "building block" based but is now about the regulator "second guessing" the business. The lawyers get the blame for increasing resort to appeal processes primarily to argue "arcane elements of the cost of capital (the angels on pinheads of regulation) that are increasingly accounting for large increases in network charges."
We should care about this because the ACCC has been moving to use energy style building block and Rate of Return regulation for telecommunications pricing.
Two particular features are worth noting. The first is Parry's observation that "businesses are being accused of gold-plating." The second is the relevance of cost of capital.
"Gold-plating" in a regulatory sense is really about building to a higher standard than is prudent. Regulated firms may have an incentive for doing so because all costs are recovered and so may indulge in inefficient design. There is, however, a more specific version of inefficiency called the Averch-Johnson effect. This effect, named after a 1962 paper, is that a firm under Rate of Return regulation can increase its profit by (inefficiently) changing the mix of capital and labour (or capital and expenses).
A particular example is the approach taken by energy firms to metering. The efficient way to use comms is to buy services from a dedicated comms supplier achieving economies of scale. But the profit can be maximised by investing capital in a bespoke communications network. As the cost of smart metering is one of the drivers of increasing energy prices the significance of the A-J effect is large and growing.
The cost of capital is the second area of dispute. Regulatory lawyers have an interest in arguing up the cost of capital - despite, as Parry notes, "that a business will drive all of its costs, including efficient financing costs, so that customers can share in those benefits." In fact, this is a paradox in the theory of managerial capitalism - an efficient firm drives down all costs including financing costs, yet we are to believe it exists to "create shareholder value" - that is to maximise funding costs.
The saving grace in telecommunications might be that the firm that used to be the industry's biggest access provider (Telstra) is about to be its biggest access seeker. If they can marshal their impressive intellectual power to the problem we might find a better outcome. Unfortunately they too have allowed regulatory processes to be captured by lawyers rather than economists.
A good strategy for them would be to split their regulatory teams into "old world" and "new world" teams. They can mount arguments that the old world treatment is to be grandfathered and new rules apply for the new world. The challenge is to have the "new world" team focussed on strategy, economics and markets rather than the law.
Note: modified to make clear that the AJ effect is not a case of gold-plating but an inefficient mix of capital and expenditure.
Novae Meridianae Demetae Dexter delenda est
Friday, June 24, 2011
The NBN and Telstra
Hopefully my views on the Telstra/NBN deal will appear in iTnews today. So I won't repeat them here.
But the NBN as a whole is a continual exercise in different policy challenges and options.
Peter Gerrand outlined his view that the ACCC decision on POIs "saved Telstra" allowing it to "re-emerge as the dominant national wholesale and retail telecommunications carrier."
This and other issues will be aired at an ACS-TSA NBN Policy Forum next week. The link is to the Sydney Forum on 30 June, there is also a Melbourne one on 28 June.
Novae Meridianae Demetae Dexter delenda est
But the NBN as a whole is a continual exercise in different policy challenges and options.
Peter Gerrand outlined his view that the ACCC decision on POIs "saved Telstra" allowing it to "re-emerge as the dominant national wholesale and retail telecommunications carrier."
This and other issues will be aired at an ACS-TSA NBN Policy Forum next week. The link is to the Sydney Forum on 30 June, there is also a Melbourne one on 28 June.
Novae Meridianae Demetae Dexter delenda est
Wednesday, June 22, 2011
The NBN and the ACCC
In an iTnews column in March I commented on the NBN PoI decision and the fact that ACCC acceptance of the NBN Co special access undertaking shouldn't be considered a foregone conclusion.
Today new ACCC Chair Rod Sims has been reported as saying the NBN is not something to be regulated "in a light-handed way", noting;
I'm someone who thinks that if you have a monopoly you have to regulate it. If it's a monopoly -- and I don't mean a duopoly -- a straight-out monopoly, you have to regulate it. Any monopoly needs regulations, whether it is in communications, electricity, gas or whatever.
There is a whole essay potentially inherent in this and it is a subject to which I will return both here and in the working papers I publish on the DigEcon Research site. The observation to make here is the three step process Australia has taken to traditional "utility regulation" of telecommunications.
Up until 1988 the PMG and Telecom were under direct Government control on prices, resulting in prices that were variously perceived as being excessively high to achieve dividends (or reduce capital costs) or excessively low to curry political favour in the regions. The reality was a bit of both - high metro prices and low regional - at least when compared to cost.
Ultimately the call for competition was driven by two things. The first was the general idea that prices should be "cost reflective" to generate "efficiency" (using the flawed economic definition). The second was the tension between telcos and computer companies as convergence was first discussed.
The second phase followed corporatisation in 1988 and was based on the then new idea (from Littlechild I believe) of "incentive based" regulation. This was a concept designed to replace pre-existing Rate of Return regulation as was current in the US at the time. The idea was a global cap on a weighted index of retail prices, the cap being CPI - X where X was a forward estimate of Total Factor Productivity (whereas CPI was the actual CPI).
This was still the main element of price control up to 1997 - while there were infrastructure access prices from 1991 to 1997 the model in the fixed duopoloy/mobile triopoly really was based on infrastructure competition - a probably naive expectation that competition could develop this way.
The 1997 reforms signalled an even greater faith, they were premised on the idea that there were sufficient competing networks that there was potential for a market to develop in interconnection services, and hence the "negotiate/arbitrate" model was introduced. The model failed for a host of reasons, not least the fact that there was an asymmetry between the regulation of the fixed and mobile networks so that interconnection negotiations between these networks never looked like a two-way access negotiation. More generally access pricing didn't distinguish between one-way access (where a long distance provider buys both PSTN originating and terminating access from the fixed network operator) and two-way access in which two networks of directly connected customers interconnect. The latter was the market of PSTN termination on non-Telstra networks and of mobile-fixed interconnection both ways.
Ultimately the policy makers have recognised the failure of the theory of infrastructure based competition for the fixed network, a failure that is not only clear in the pseudo facilities based model of naked DSL, but was also apparent in the contending views on FttN.
What this has been matched with is really a version of "rate of return" regulation. This is how the new mandated pricing structure for access to the Telstra network works, and will be the basis for NBN Co regulation. It is, however, a forward looking version of RoR regulation.
The weakness is that such price calculation becomes incredibly sensitive to the demand forecasts in the pricing model.
I happen to believe that there are other market mimicking ways to price that generate the kind of information exchange for which we really should value markets.
I just don't think I can convince the policy makers, the regulators or the commercial firms.
Novae Meridianae Demetae Dexter delenda est
Today new ACCC Chair Rod Sims has been reported as saying the NBN is not something to be regulated "in a light-handed way", noting;
I'm someone who thinks that if you have a monopoly you have to regulate it. If it's a monopoly -- and I don't mean a duopoly -- a straight-out monopoly, you have to regulate it. Any monopoly needs regulations, whether it is in communications, electricity, gas or whatever.
There is a whole essay potentially inherent in this and it is a subject to which I will return both here and in the working papers I publish on the DigEcon Research site. The observation to make here is the three step process Australia has taken to traditional "utility regulation" of telecommunications.
Up until 1988 the PMG and Telecom were under direct Government control on prices, resulting in prices that were variously perceived as being excessively high to achieve dividends (or reduce capital costs) or excessively low to curry political favour in the regions. The reality was a bit of both - high metro prices and low regional - at least when compared to cost.
Ultimately the call for competition was driven by two things. The first was the general idea that prices should be "cost reflective" to generate "efficiency" (using the flawed economic definition). The second was the tension between telcos and computer companies as convergence was first discussed.
The second phase followed corporatisation in 1988 and was based on the then new idea (from Littlechild I believe) of "incentive based" regulation. This was a concept designed to replace pre-existing Rate of Return regulation as was current in the US at the time. The idea was a global cap on a weighted index of retail prices, the cap being CPI - X where X was a forward estimate of Total Factor Productivity (whereas CPI was the actual CPI).
This was still the main element of price control up to 1997 - while there were infrastructure access prices from 1991 to 1997 the model in the fixed duopoloy/mobile triopoly really was based on infrastructure competition - a probably naive expectation that competition could develop this way.
The 1997 reforms signalled an even greater faith, they were premised on the idea that there were sufficient competing networks that there was potential for a market to develop in interconnection services, and hence the "negotiate/arbitrate" model was introduced. The model failed for a host of reasons, not least the fact that there was an asymmetry between the regulation of the fixed and mobile networks so that interconnection negotiations between these networks never looked like a two-way access negotiation. More generally access pricing didn't distinguish between one-way access (where a long distance provider buys both PSTN originating and terminating access from the fixed network operator) and two-way access in which two networks of directly connected customers interconnect. The latter was the market of PSTN termination on non-Telstra networks and of mobile-fixed interconnection both ways.
Ultimately the policy makers have recognised the failure of the theory of infrastructure based competition for the fixed network, a failure that is not only clear in the pseudo facilities based model of naked DSL, but was also apparent in the contending views on FttN.
What this has been matched with is really a version of "rate of return" regulation. This is how the new mandated pricing structure for access to the Telstra network works, and will be the basis for NBN Co regulation. It is, however, a forward looking version of RoR regulation.
The weakness is that such price calculation becomes incredibly sensitive to the demand forecasts in the pricing model.
I happen to believe that there are other market mimicking ways to price that generate the kind of information exchange for which we really should value markets.
I just don't think I can convince the policy makers, the regulators or the commercial firms.
Novae Meridianae Demetae Dexter delenda est
Thursday, May 19, 2011
Empathy for Optus
Optus yesterday was fined $178,200 over adds for a "Max Cap" plan in July and August last year. Reporting on the story in the SMH Lucy Battersby says that Optus doesn't agree with the claim that the ads were misleading but moved to replace them immediately.
In an opinion piece also in the SMH Elizabeth Knight writes;
The reality is that the ACCC spends a ridiculous amount of time dealing with exaggerated or plain fictional marketing claims made by telcos. It is hard to find someone who hasn't got some beef about their telco service provider or mobile phone bill.
Given that she then recites some of the language that David Howarth so delightfully ridiculed as I noted in a column for itNews it may surprise you that I feel some empathy for Optus.
The reason is simply that there is so much inconsistency in the operation of the law of misleading and deceptive conduct. Optus in this case was pursued by the ACCC and took the decision to change their practice to avoid a lengthy argument. The fine they have been asked to pay is less than the annual salary of their corporate counsels.
Meanwhile last December Optus initiated its own action against Vodafone over the latter's "infinite" plans. They were unsuccessful in gaining an injunction and have since dropped the matter. But it was the judgement in the injunction that was extraordinary.
Elizabeth Knight notes that "It's true that the more sophisticated consumer understands that there are plenty of calls that are not covered by a cap, but in some cases the fine print exclusions are a fraction the size of the headline marketing claims."
But Justice Nicholas stated in his judgement (at para 19);
It also needs to be remembered that ordinary and reasonable consumers, who might be expected to take some care of their own interests, are likely to do more than simply rely upon these particular television commercials in deciding whether or not to sign up to the respondent’s plan. These types of plans typically involve a contractual commitment of a year or more in duration and are invariably the subject of terms and conditions which relate to matters of detail of the kind that the applicant’s complaints focus upon.
According to this decision it doesn't really matter how much the actual terms vary from the advertised terms because the customer is LOCKED IN TO those terms the customer has an increased obligation to read and understand the full terms before acquiring the service.
Optus not only lost but has been required to pay Vodafone's costs. It would be interesting to know which amount is higher, the fine they just received or the cost of their failed litigation.
Personally I think Optus over-stated the case; they listed all the call types not included in the Voda plans. A focus only on 1800 and 13/1300 (in line with ACCAN's Fair Calls for All campaign may have been easier to argue.
So in defence of telcos and others, it is very hard to win the internal battle on compliance when the external rules are vague and inconsistently interpreted.
Novae Meridianae Demetae Dexter delenda est
In an opinion piece also in the SMH Elizabeth Knight writes;
The reality is that the ACCC spends a ridiculous amount of time dealing with exaggerated or plain fictional marketing claims made by telcos. It is hard to find someone who hasn't got some beef about their telco service provider or mobile phone bill.
Given that she then recites some of the language that David Howarth so delightfully ridiculed as I noted in a column for itNews it may surprise you that I feel some empathy for Optus.
The reason is simply that there is so much inconsistency in the operation of the law of misleading and deceptive conduct. Optus in this case was pursued by the ACCC and took the decision to change their practice to avoid a lengthy argument. The fine they have been asked to pay is less than the annual salary of their corporate counsels.
Meanwhile last December Optus initiated its own action against Vodafone over the latter's "infinite" plans. They were unsuccessful in gaining an injunction and have since dropped the matter. But it was the judgement in the injunction that was extraordinary.
Elizabeth Knight notes that "It's true that the more sophisticated consumer understands that there are plenty of calls that are not covered by a cap, but in some cases the fine print exclusions are a fraction the size of the headline marketing claims."
But Justice Nicholas stated in his judgement (at para 19);
It also needs to be remembered that ordinary and reasonable consumers, who might be expected to take some care of their own interests, are likely to do more than simply rely upon these particular television commercials in deciding whether or not to sign up to the respondent’s plan. These types of plans typically involve a contractual commitment of a year or more in duration and are invariably the subject of terms and conditions which relate to matters of detail of the kind that the applicant’s complaints focus upon.
According to this decision it doesn't really matter how much the actual terms vary from the advertised terms because the customer is LOCKED IN TO those terms the customer has an increased obligation to read and understand the full terms before acquiring the service.
Optus not only lost but has been required to pay Vodafone's costs. It would be interesting to know which amount is higher, the fine they just received or the cost of their failed litigation.
Personally I think Optus over-stated the case; they listed all the call types not included in the Voda plans. A focus only on 1800 and 13/1300 (in line with ACCAN's Fair Calls for All campaign may have been easier to argue.
So in defence of telcos and others, it is very hard to win the internal battle on compliance when the external rules are vague and inconsistently interpreted.
Novae Meridianae Demetae Dexter delenda est
Monday, May 16, 2011
Sharing the presses
In the long history of newspapers the relationship between owning a title and owning a press have existed under different models.
The classic model of the original "gazette" was of one person who wrote the stories, typeset them himself and then printed the paper. Ownership of a press was very important. But as presses grew to being large capital investments and had capacity beyond the requirement of just the titles of the owner, capacity on those presses have been sold to others.
For example, Fairfax pays others to print the AFR in states other than Vic and NSW.
Often this is for bespoke rather than competitive titles, and more usually through smaller presses. But declining circulation and shrinking classified volumes means that the large presses of the majors have increasing spare capacity.
It is no surprise, therefore, that News and Fairfax are reported to be close to a deal to share printing presses in Sydney and Melbourne.
While this should be welcomed on technical efficiency grounds it creates a risk of what is known as hold-up. If the deal results in Fairfax being a client of News it creates the possibility that sometime in the future News increases the price it charges Fairfax (unreasonably).
There are solutions to this, either by specifying all future prices in the contract or by empowering an arbiter of future pricing (the latter being exactly what an access regime is). Fairfax should have some protection as the News presses will become a monopoly.
The deal would technically meet the acquisition rules of s50 of the Competition and Consumer Act. As just noted the new business is a monopoly. To gain approval for the deal the Fairfax group could seek to produce a new national title that would increase competition in some markets.
It will be interesting to see how the ACCC eventually responds to any proposal that emerges.
Novae Meridianae Demetae Dexter delenda est
The classic model of the original "gazette" was of one person who wrote the stories, typeset them himself and then printed the paper. Ownership of a press was very important. But as presses grew to being large capital investments and had capacity beyond the requirement of just the titles of the owner, capacity on those presses have been sold to others.
For example, Fairfax pays others to print the AFR in states other than Vic and NSW.
Often this is for bespoke rather than competitive titles, and more usually through smaller presses. But declining circulation and shrinking classified volumes means that the large presses of the majors have increasing spare capacity.
It is no surprise, therefore, that News and Fairfax are reported to be close to a deal to share printing presses in Sydney and Melbourne.
While this should be welcomed on technical efficiency grounds it creates a risk of what is known as hold-up. If the deal results in Fairfax being a client of News it creates the possibility that sometime in the future News increases the price it charges Fairfax (unreasonably).
There are solutions to this, either by specifying all future prices in the contract or by empowering an arbiter of future pricing (the latter being exactly what an access regime is). Fairfax should have some protection as the News presses will become a monopoly.
The deal would technically meet the acquisition rules of s50 of the Competition and Consumer Act. As just noted the new business is a monopoly. To gain approval for the deal the Fairfax group could seek to produce a new national title that would increase competition in some markets.
It will be interesting to see how the ACCC eventually responds to any proposal that emerges.
Novae Meridianae Demetae Dexter delenda est
Friday, April 15, 2011
The Rule of Law
I don't know why I read the columns of Henry Ergas in the Oz, because I know they will just make me cranky.
Today he opines that what we need from regulators is "rules, not roulettes".
He lost me though in the rest of that para when he says;
Nowhere is that need greater than at the Australian Competition & Consumer Commission. With Graeme Samuel's departure, it's time to bring to the ACCC disciplines the Rule of Law Association of Australia has long called for. (emphasis added)
The Rule of Law Association of Australia which also calls itself an Institute) was founded in September 2009! I've never thought nineteen months "long" especially in policy terms.
Strangely his first complaint is that the ACCC under Graeme Samuel hasn't been a particularly active litigant. He dismisses the ACCC argument about the way judicial interpretation has hamstrung the operation of the act by citing cases that were mostly determined before the relevant High Court decisions.
He criticises the ACCC over the delays in the A&R/Borders merger saying " the ACCC initially claiming those booksellers, since destroyed by internet shopping, faced little competitive constraint." As I've written previously the ACCC actually erred in permitting the takeover because the Borders business model was "category killer" which is another word for "monopolising". Competition in bookselling would have been stronger letting Borders fail than by letting A&R buy it.
{One could go on a diversion about the ACCC decision to block the Foxtel acquisition of Australis, the latter then collapsed, the outcome was probably better than the merger as the assets of Australia then got distributed between Foxtel, Austar, Optus and TARBS).
The criticism though of Samuel that follows has nothing to do with the "rule of law". He is actually criticised for his role as a "policy player" - where he goes along with policies that Ergas happens to disagree with (FuelWatch, GroceryWatch, the NBN). And here there is a really interesting distinction - because I guess if Samuel was opposing policies that Ergas agreed with he'd be criticised for straying from the "regulator" box.
The ACCC is subject to the rule of law, all decisions are reviewable under the provisions of the ADJR and a large subset fall into the Australian Competition Tribunal.
There are, however, many problems with the law Samuel is responsible for. Misleading and deceptive conduct is one classic area where the concept of a "reasonable man" is at the fore and one judge recently concluded that something in advertising is unlikely to be misleading because the customer is required to enter into a one year agreement and a reasonable person would read that agreement.
(at para 19
It also needs to be remembered that ordinary and reasonable consumers, who might be expected to take some care of their own interests, are likely to do more than simply rely upon these particular television commercials in deciding whether or not to sign up to the respondent’s plan. These types of plans typically involve a contractual commitment of a year or more in duration and are invariably the subject of terms and conditions which relate to matters of detail of the kind that the applicant’s complaints focus upon.
The concept of "competition" in competition law depends on a judicial interpretation that is the complete opposite of the concept in economics, it thinks of competition as rivalry between firms rather than for customers. As more like tennis than golf. The definition specifically allows for the kind of "strategic interaction" assumed away in the theory of competition in the orthodox mindset.
The problem with competition law is the law, not its implementation.
That said I mostly agree with Ergas' conclusion;
Rather, we need effective checks and balances, including chairs appointed for a single term only, consistent disclosure of financial interests, more stringent parliamentary scrutiny, periodic Productivity Commission audits, and merits review of major decisions.
That there are important choices Australians would rather vest in independent regulators than in politicians is fully understandable. But the trend to government by the unelected is itself fraught with dangers.
Unaddressed, those dangers could lead all too readily to the rule not of laws but of political convenience. Leaving our regulators unregulated should no longer be an option.
But this was a ball the Howard Government badly dropped in the Uhrig review that lumped regulators in with other agencies in consideration of governance. Hence when the ACMA was formed the debate was whether it was governed by the CAC Act or the FMA Act. What is missing is the "Independent Regulators Act" that establishes all the principles that Ergas refers to (though I might use someone other than the PC - technically the Commonwealth Ombudsman brief is better suited to oversight of administrative action).
Novae Meridianae Demetae Dexter delenda est
Today he opines that what we need from regulators is "rules, not roulettes".
He lost me though in the rest of that para when he says;
Nowhere is that need greater than at the Australian Competition & Consumer Commission. With Graeme Samuel's departure, it's time to bring to the ACCC disciplines the Rule of Law Association of Australia has long called for. (emphasis added)
The Rule of Law Association of Australia which also calls itself an Institute) was founded in September 2009! I've never thought nineteen months "long" especially in policy terms.
Strangely his first complaint is that the ACCC under Graeme Samuel hasn't been a particularly active litigant. He dismisses the ACCC argument about the way judicial interpretation has hamstrung the operation of the act by citing cases that were mostly determined before the relevant High Court decisions.
He criticises the ACCC over the delays in the A&R/Borders merger saying " the ACCC initially claiming those booksellers, since destroyed by internet shopping, faced little competitive constraint." As I've written previously the ACCC actually erred in permitting the takeover because the Borders business model was "category killer" which is another word for "monopolising". Competition in bookselling would have been stronger letting Borders fail than by letting A&R buy it.
{One could go on a diversion about the ACCC decision to block the Foxtel acquisition of Australis, the latter then collapsed, the outcome was probably better than the merger as the assets of Australia then got distributed between Foxtel, Austar, Optus and TARBS).
The criticism though of Samuel that follows has nothing to do with the "rule of law". He is actually criticised for his role as a "policy player" - where he goes along with policies that Ergas happens to disagree with (FuelWatch, GroceryWatch, the NBN). And here there is a really interesting distinction - because I guess if Samuel was opposing policies that Ergas agreed with he'd be criticised for straying from the "regulator" box.
The ACCC is subject to the rule of law, all decisions are reviewable under the provisions of the ADJR and a large subset fall into the Australian Competition Tribunal.
There are, however, many problems with the law Samuel is responsible for. Misleading and deceptive conduct is one classic area where the concept of a "reasonable man" is at the fore and one judge recently concluded that something in advertising is unlikely to be misleading because the customer is required to enter into a one year agreement and a reasonable person would read that agreement.
(at para 19
It also needs to be remembered that ordinary and reasonable consumers, who might be expected to take some care of their own interests, are likely to do more than simply rely upon these particular television commercials in deciding whether or not to sign up to the respondent’s plan. These types of plans typically involve a contractual commitment of a year or more in duration and are invariably the subject of terms and conditions which relate to matters of detail of the kind that the applicant’s complaints focus upon.
The concept of "competition" in competition law depends on a judicial interpretation that is the complete opposite of the concept in economics, it thinks of competition as rivalry between firms rather than for customers. As more like tennis than golf. The definition specifically allows for the kind of "strategic interaction" assumed away in the theory of competition in the orthodox mindset.
The problem with competition law is the law, not its implementation.
That said I mostly agree with Ergas' conclusion;
Rather, we need effective checks and balances, including chairs appointed for a single term only, consistent disclosure of financial interests, more stringent parliamentary scrutiny, periodic Productivity Commission audits, and merits review of major decisions.
That there are important choices Australians would rather vest in independent regulators than in politicians is fully understandable. But the trend to government by the unelected is itself fraught with dangers.
Unaddressed, those dangers could lead all too readily to the rule not of laws but of political convenience. Leaving our regulators unregulated should no longer be an option.
But this was a ball the Howard Government badly dropped in the Uhrig review that lumped regulators in with other agencies in consideration of governance. Hence when the ACMA was formed the debate was whether it was governed by the CAC Act or the FMA Act. What is missing is the "Independent Regulators Act" that establishes all the principles that Ergas refers to (though I might use someone other than the PC - technically the Commonwealth Ombudsman brief is better suited to oversight of administrative action).
Novae Meridianae Demetae Dexter delenda est
Tuesday, April 12, 2011
Friday, March 04, 2011
Self-publicity
My latest in my series of columns for itNews raises the prospect that NBN Co will have significant hurdles to cross in getting its Special Access ndertaking accepted by the ACCC.
Novae Meridianae Demetae Dexter delenda est
Novae Meridianae Demetae Dexter delenda est
Tuesday, March 02, 2010
Facets of telco regulation
The CEO of ACCAN, Alan Asher, when discussing the status of telco regulation in Australia will at times note the lack of effective enforcement action by our regulators. Meanwhile Communications Alliance CEO Anne Hurley upset some of her members when in response to the Government consultation on Australian Consumer Law she suggested that the telco sector should only face one consumer regulator not two.
Today there is a report that one telco has admitted to the ACCC that its sales practices were likely to mislead customers, and that it had referred consumer debts to debt collection agencies while disputed over the "slamming" that had occurred.
The interesting point is that while these actions fall foul of the general prohibitions in the Trade Practices Act, they are each specificinstances of breaches of the relevant industry codes. In particular they are breaches of the Consumer Protection Code provisions on sales practices, complaint handling and credit management.
The question is why are the matters being dealt with by the ACCC under the general powers rather than the ACMA under the specific powers.
Meanwhile there are also a report of the ACMA prosecuting a telco over actions in breach of the Do Not Call register legislation when the same behaviour was dealt with under enforcement by the ACCC. Clearly in this case it is different aspects of the conduct being prosecuted - ringing the wrong people versus saying the wrong things.
Both cases involve a telco employing a selling agent, a case which always creates compliance challenges. In the latter case the telco claims it is being pursued over practices that it has fixed. It ultimately raises the question of how compliance programs should work and how much protection a firm should ge from them.
By their very natue sales activities are not directly supervised and "agents" (be they individuals within a sales organisation or a outsourced agency) can have incentives to "break the rules". As a consequence breaches are almost certain to occur - just as the law against fraud doesn't mean there isn't lots of fraud, or the law against theft doesn't stop lots of petty cash tins being light.
In those cases the enforcement action is usually brought directly on the contravening individual, but compliance with the TPA or telco codes is a responsibility of the principal not the agent.
It was in recognition of this fact that the ACCC played a leading role in the creation of an Australian Standard for compliance programs. The ACCC at least informally considers the approach to compliance in its decisions on whether to prosecute. I don't think the ACMA has developed as sophisticated a view. Certainly consumer advocates seem to be unaware of the distinction.
Ultimately the issue is how well you as a firm communicate the compliance message, train staff or agents on compliance and legal obligations, construct incentive schemes so that non-compliance can't be rewarded and finally manage the complaint process so that complaints that indicate non-compliance are aggressively used to identify "rogue" agents. It is unfortunately the latter that is most usually deficient with telcos all too often wanting to believe that the customer's claim of misleading conduct is just a cover for wanting to brake a contract.
Meanwhile in Europe regulators have taken decisve action on the latest source of mobile "bill shock" - high data roaming charges. Could Australia apply to be part of Europe for this?
Today there is a report that one telco has admitted to the ACCC that its sales practices were likely to mislead customers, and that it had referred consumer debts to debt collection agencies while disputed over the "slamming" that had occurred.
The interesting point is that while these actions fall foul of the general prohibitions in the Trade Practices Act, they are each specificinstances of breaches of the relevant industry codes. In particular they are breaches of the Consumer Protection Code provisions on sales practices, complaint handling and credit management.
The question is why are the matters being dealt with by the ACCC under the general powers rather than the ACMA under the specific powers.
Meanwhile there are also a report of the ACMA prosecuting a telco over actions in breach of the Do Not Call register legislation when the same behaviour was dealt with under enforcement by the ACCC. Clearly in this case it is different aspects of the conduct being prosecuted - ringing the wrong people versus saying the wrong things.
Both cases involve a telco employing a selling agent, a case which always creates compliance challenges. In the latter case the telco claims it is being pursued over practices that it has fixed. It ultimately raises the question of how compliance programs should work and how much protection a firm should ge from them.
By their very natue sales activities are not directly supervised and "agents" (be they individuals within a sales organisation or a outsourced agency) can have incentives to "break the rules". As a consequence breaches are almost certain to occur - just as the law against fraud doesn't mean there isn't lots of fraud, or the law against theft doesn't stop lots of petty cash tins being light.
In those cases the enforcement action is usually brought directly on the contravening individual, but compliance with the TPA or telco codes is a responsibility of the principal not the agent.
It was in recognition of this fact that the ACCC played a leading role in the creation of an Australian Standard for compliance programs. The ACCC at least informally considers the approach to compliance in its decisions on whether to prosecute. I don't think the ACMA has developed as sophisticated a view. Certainly consumer advocates seem to be unaware of the distinction.
Ultimately the issue is how well you as a firm communicate the compliance message, train staff or agents on compliance and legal obligations, construct incentive schemes so that non-compliance can't be rewarded and finally manage the complaint process so that complaints that indicate non-compliance are aggressively used to identify "rogue" agents. It is unfortunately the latter that is most usually deficient with telcos all too often wanting to believe that the customer's claim of misleading conduct is just a cover for wanting to brake a contract.
Meanwhile in Europe regulators have taken decisve action on the latest source of mobile "bill shock" - high data roaming charges. Could Australia apply to be part of Europe for this?
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