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

To my loyal reader(s)

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

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

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

So, we now adopt radio silence.


Novae Meridianae Demetae Dexter delenda est

What is the opposite of Godwin's Law?

I don't know what the opposite of Godwin's Law is, but in a strange piece of irony it appears that Malcolm Turnbull is trying to define it.

The irony is, of course, that it was another Godwin (Grech) who caused Turnbull so much trouble when leader, resulting in a classic case of over-reaching and rhetorical flourish. To remind you Godwin's Law states "As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1."

As the Wikipedia entry notes "Godwin's law is often cited in online discussions as a deterrent against the use of arguments in the widespread Reductio ad Hitlerum form." Turnbull has resorted to Reductio ad Communism (see note below). Turnbull started by simply relying on the Economist Intelligence Unit report on broadband investments (for purchase here). (That report and Turnbull's reliance on them show a complete lack of understanding of the principles of both economics and accounting...but more on that later.) But Turnbull's rhetorical flourish got the better of him, to the press he reportedly said;

This is the telecommunications version of Cuba. Cuba is the last communist state … I stand corrected, there's North Korea too. [Communications Minister] Stephen Conroy doesn't even have a North Korea to his Cuba, he's a one-and-only.

 (Intriguingly what looks like the official Cuba promotion site Cuba.com picked up the story and ran it without comment.)

 Let's start with some simple facts. There has been a national telecommunications monopoly for fixed line access in Australia since before Federation. The introduction of competition reforms and encouraging competitive investment did not fundamentally change that.

As I outlined in a recent submission to the ACCC the fixed line access network is even more a natural monopoly now than it was before. The decision being made is not whether to have a monopoly or not - that is determined by the cost structure. It is how to regulate that monopoly. As Senator Conroy said at the press conference announcing the FTTH version of the NBN;

This solves once and for all the core problem created when the previous Prime Minister privatised Telstra a decade ago without ever resolving the conflict of a private monopoly, owning the network infrastructure and dominating the retail market.

Australia's telecommunications network was Government owned until 1996. Indeed Government ownership was the global norm. The British government assumed full ownership and control of the British telephone system on 1 January 1912. Even the US Bell System (AT&T) was placed under Government control for one year to 1 August 1919.

In the discussion leading up to this the head of AT&T Theodore Vail said "all monopolies should be regulated." (See John Brooks Telephone).

Despite Robert Menzies determined efforts to ban the Communist Party, there is no evidence that he ever saw the ownership of the telecommunications network as socialist in any way. The entry on Menzies on the National Museum of Australia website notes;

Following increasing public dissatisfaction with Joseph Benedict Chifley's Labor government, the Liberal and Country parties swept to power at the general election on 10 December 1949. The fall of JB Chifley's Labor government followed a series of Communist-inspired strikes, controversies over Labor's wish to nationalise private banks, medical practitioners, transport and communications, and mounting public impatience with continuing wartime austerity measures.

The nationalisation of communications proposed referred to was only of overseas links. Ann Moyal in Clear Across Australia (at P.181) details how the Cable and Wireless Ltd monopoly on international cables was regarded as an impediment to war efforts. The initiative to replace Cable and Wireless' monopoly with "autonomous but interlocked government-owned telecommunications entities" was proposed by Australia and New Zealand at meetings of the (British) Commonwealth Communications Council in 1944 and 45.

It was enacted in Australia in 1946 and only one parliamentarian, a Liberal Senator from WA, took exception to a separate overseas telecommunications body 'when officers of the Post-Master's General Department are capable of undertaking their work.' (To be fair I should go read the debate on the OTC Bill to see if any Liberal voices were raised against this nationalisation or proposing privatisation of the PMG, and also read Alexander Grahame Bell's evidence to the 1910 Royal Commission .... but that will have to wait).

Ultimately the question is not whether government ownership of natural monopolies is communism; it is whether it is good policy (noting Vail's comment that "all monopolies should be regulated.") Sanford Berg and John Tschirhart in their Natural monopoly regulation: Principles and practices note;

If regulation of private natural monopolies results in inefficient production techniques and output prices, then one solution might be to socialize these monopolies: change the ownership from private to public. However, this proposal raises the hackles of many consumers, producers and regulators for reasons that extend beyond the domain of economic analysis.

Within the realm of economics though they list three main studies comparing cost of private monopolies versus public ones, Two conclude that public monopolies operate at lower cost, while the third finds no difference. The major basis for the assertion of the inefficiency of public enterprise is an article by Alchian (in a 1965 paper in Il Politico which only seems to be held in 4 libraries in Australia). Berg and Tschirhart state;

Alchian and subsequent authors have argued that public ownership will be less efficient because managers of public firms have more latitude in pursuing non-profit-maximizing objectives. Yet their hypothesis was not supported by the data.

The neo-liberal faith in privatisation is like so much of the neoclassical economic framework - a triumph of theory over observation, of analysis over empiricism.

Finally a note on the EIU study. The Australian Government financing of the NBN is totally by way of an equity investment in an enterprise that will return the cost of capital. The other programs it is compared to appear to be all grants - just like all the Howard Government programs. That Government can fund telecommunications this way is demonstrated by the PMG/Telecom story. The telecommunications function was financed by loans from the Commonwealth from 1959 on. All those loans were repaid with interest owing prior to privatisation in 1996.

If Malcolm Turnbull really wants to invoke a "communist" stance he might target a policy of "direct action" on climate change instead of the use of a price - but that is happening on his side of the chamber.

I propose Turnbull's Corollary to Godwin's Law "As a politician with no policy keeps talking, the probability of an illogical comparison approaches 1."

Note: Reductio ad Communism has been proposed previously for a Wikipedia entry but immediately deleted due to lack of references. Any readers who feel inclined to remedy that with references to Turnbull feel free (unless I get there first myself).

Novae Meridianae Demetae Dexter delenda est

The Media Inquiry - Part 2

In the SMH this morning Richard Ackland writes

Of course, this is not the first time the print media has been disturbed by officials taking a peek under its skirts. The inquiries of recent human memory both concerned Fairfax, the publisher of this organ.

In March 1992 a House of Representatives select committee produced a report called ''News & Fair Facts - the Australian Print Media Industry''. .... The committee went on to produce a report that lies unstudied and forgotten in the parliamentary library. It even produced a chapter on how to beef up the Press Council and the impact of ''technology''. ...

The other major print media inquiry took place in the 1980s in Melbourne under former judge Sir John Norris. It concluded there was too much concentration of control and ownership, what with Fairfax at that time having large shareholdings in Herald & Weekly Times Ltd and The Age.

It is worthwile in the context of the current inquiry noting the existence of earlier inquiries, but Ackland gets their number wrong.

The Print Media Inquiry report is available online (though at the time of writing the online version is not complete - a matter being rectified by APH staff now).

Ackland also notes that the committee's hearings coincided with the Tourang bid for Fairfax, but this was not its motivation. Its motivation was the acquisition of the Herald and Weekly Times by News Ltd and Fairfax going into receivership.

Mr Packer did go on to give some compelling evidence given the significance of the Tourang bid to the question of concentration of ownership.

But a later committee was actually established in the Senate to fully inquire into the Fairfax issues of 1991 and 1993 producing the report Percentage Players

Intriguingly that committee formed the view that the PM suggesting that the foreign acquisition of Fairfax would be allowed on the condition that reporting be"balanced" was inappropriate. Yet the backdrop to the current inquiry is unbalanced coverage by newspapers owned by a foreign proprietor.

The committee in particular called for the Foreign Acquisitions and Takeover Act and other instruments to be replaced with a single instrument covering all foreign ownership issues. It also called for the Foreign Investment Review Board to be replaced by a new Statutory Authority. This was a report written in 1994 by the then opposition. Interestingly in 12 years in Government neither of these things occurfred.

But on the core issue of standards rather than ownership and concentration the parliament again visited the issue in 2000 with a report by the Senate Information Technologies committee In the Public Interest.

That committee actually recommended

establishment of an independent statutory body, the Media Complaints Commission (MCC), which will be a one-stop-shop for all complaints and will assist to enforce standards established by self-regulation.

This appears to be highly relevant to the current inquiry.

Meanwhile the Member for Bradfield has another Op Ed published claiming Stephen Conroy's media circus is an exercise in revenge.

Fletcher asks;

If an inquiry is needed, why is it confined to the print media as opposed to many other forms of media including free-to-air television, pay-TV, radio and the booming online sector?

In doing so he conveniently ignores the fact the Minister already has a Convergence Review looking at these sectors.

He concludes;

This inquiry is an exercise in retaliation, designed to lead to the imposition of new regulatory burdens on News Limited papers, with those operated by other companies to suffer collateral damage.

It is a political exercise pure and simple. For anyone who cares about the role of newspapers in our democracy, this new inquiry is the last thing we need. It should be cancelled immediately.

It is interesting to note that the committee report from 2000, on which the Howard Government with Richard Alston as Minister (an office in which the Member for Bradfield once worked), was a report from the coalition members of the committee, the dissenting reports were from the ALP and the Democrats.

Finally let's note that the last trigger for this inquiry was the Bolt blog and the pulled Milne article. The error of their publication was revealed by the way that News responded. Clearly that News response wasn't based on a deal about the media inquiry (as suggested).

But Bolt himself raised the concern that an ordinary citizen would not have had the mechanism for redress the PM used - ringing the CEO. And that is exactly the point, there is no effective complaints mechanism, a fact that has been reported as part of two previous committees.

It is perhaps time the Member for Bradfield caught up and let the current Minister get on with doing things that the member's former boss ignored!

Novae Meridianae Demetae Dexter delenda est

The Media Inquiry

Senator Conroy's media inquiry will at least go at least part way to the issues that I blogged recently were relevant.

It clearly addresses the question of complaint mechanisms. Andrew Bolt was actually right to note that not everyone could ring John Hartigan, like the PM could, to complain about the Milne article. Someone did pose though the question of whether the ACMA is any less toothless than the Press Council. At least we can frame the question "what would a well functioning complaints system look like" (might take some heat off telcos for a while too!)

The second ToR addresses the question of market structure but in a roundabout way;

The impact of this technological change on the business model that has supported the investment by traditional media organisations in quality journalism and the production of news, and how such activities can be supported, and diversity enhanced, in the changed media environment

Michelle Grattan has criticised the ToR for the fact that they don't address "the high concentration of Australian newspaper ownership." But that concentration is in part driven by the "business model." In fact to the <http://www.aph.gov.au/house/committee/report_register/bycomlist.asp?id=190>last print inquiry twenty years ago the http://trove.nla.gov.au/work/15729267?">News Ltd submission made the compelling case that the future was for only one newspaper in each city - a forecast that still looks increasingly likely for Sydney and Melbourne and applies elsewhere already.

As Wendy Bacon has commented;

It’s an opportunity for those who allege there is systematic market failure to deliver comprehensive news and current affairs from diverse view points to come up with evidence for that, in the way that Robert Manne has done in his Quarterly Essay. (must go read that now)

Malcolm Turnbull scoffed at the idea the inquiry could do anything to help make the business model for newspapers more sustainable.

However it is abundantly clear that shared printing facilities will go a long way to help the cost structures. There is a real difficulty though with the private incentives (each thinks the other will be forced to close first), and there are potential competition issues (the ACCC might view it as collusion, agreement very hard to write).

Government could intervene by (a) creating an "access right" to printing presses for third parties if you control over a threshold of readership in a market and (b) creating some explicit rules for the management of shared print facilities.

Such a proposal would change the incentives on voluntary co-operation and remove the impediment.

The same is true of a whole host of other savings by sharing. Chris Anderson highlighted the cost of duplicated TV news feeds in his Andrew Olley lecture. He reported on a study conducted by Kevin McQuillan from RMIT that found;

After reviewing the content of the news programmers, (we excluded SBS - as that is often not a typical domestic rundown), the report concluded:
1. That competition, fierce as it is, is often failing to produce significantly different news programs;
2. 'exclusives' rarely lead the network bulletins, or were good enough to be placed in the top four stories.
3. There is questionable value in the current system of each network sending a reporter and crew to the same event for what will inevitably be the same story.

It is interesting to note that the vertical integration of news media recently saw the disbandment of the New Zealand equivalent of AAP. The history of AAP itself is interesting having been formed as a cooperative of a vast number of news organisations to provide common news - especially from overseas. Today it is owned by just the three remaining big print players.

It is interesting also to note (as detailed by Ken Inglis in his two volume history of the ABC) that the ABC began its radio news services by simply reading the daily newspapers and then subscribing to the AAP feed. The newspapers fearing the competition denied the ABC the access thus triggering the decision by the ABC to deploy its own network of international correspondents.

A lot would happen to the media business model if this process were reversed, that the ABC was to take on a role as not just public sector broadcaster but the "official" newsagency and that its raw footage of anything it covered was available to other "subscribing" news organisations. (The subscription model needs to be well designed - but that's an economics blog post).

So we are going to address in more detail the right questions. The ToR also neatly explain that the media inquiry works as a sort of mini-inquiry within the Convergence Review with the final report of the CR to include the outcomes from the media inquiry.

And a final note, UNSW's George Williams backed up in the AFR this morning something I tweeted yesterday. The print media isn't a formal federal power, but the judgement in the Work Choices case indicates the Feds could easily use the corporations power to implement media regulation.

Novae Meridianae Demetae Dexter delenda est

NBN Again - inconsistency of Joyce, warning for Turnbull

News in the AFR today (behind paywall) that the coalition is about to "change its point of attack" on the NBN from the need for a CBA or the integrity of the NBN Co CEO to the affordability of the service and label it the "No Battler Network".

This is a strange strategy since the analysis of the Internode pricing is that it is the same as their ADSL 2 services! Much focus has been on the fact that the entry level plan is dearer than a telephone line for those who don't just want a telephone.

But let's look as much as we can at the detail and how it is that voice services are delivered and priced. The NBN Co entry level wholesale price is $24 per month including the 150kbps quality 1 for voice. Internode isn't in the business of offering voice only so it hasn't looked at building a voice only service. But Telstra not only will, but has to. It will continue to be the contracted "USO provider". There will be from Telstra a voice only service at EXACTLY THE SAME price points as exist today.

A big difference between the network requirement for voice and Internet is in the backhaul - and the CVC charges Simon Hackett has bleated about. To provide voice you just need that 150kbps per service - not the up to 100Mbps that the internet requires.

I sincerely doubt the NBN Co/Telstra/Government agreement could have reached the point it has without clarity about the retail price for voice to be offered by Telstra.

The inconsistency from Joyce is that he is quoted as supporting a Fibre to the Node (which he calls broadband to the node) build because the price of higher speed services delivered by wireless or satellite will be higher than fibre.

His inconsistency is manifold. Firstly because in the period between his election to the Senate in 2004 and becoming a Senator he and Senator Nash delivered a report for the Page Centre calling for a fibre to the home network in regional Australia. Inconsistent because from 2007 to 2010 coalition response to the NBN was to say the network was unnecessary and that regional problems would have been solved by the OPEL contract - that is wireless.

Finally no one's FttN proposal results in a bigger physical footprint than the FttP proposal - the premises outside fibre reach are basically outside FttN reach. If not then there may be a small tweak possible at the margins.

The coalition strategy is ill-founded and should fail. That is so long as the ALP can focus its mind on facts not rhetoric.


Novae Meridianae Demetae Dexter delenda est

Regional Telecommunications Review

Senator Conroy has announced the membership of the new Regional Telecommunications Independent Review Committee.

The committee is due to report in March 2012.

The committee has legislated terms of reference to report on the adequacy of services of significance in regional areas. They have been also tasked to report on "initiatives that will enable regional communities to participate in, and realise the opportunities of, the digital economy".

Quite disappointingly the ever eager Department has refreshed the RTIRC website - listing the new committee and scrubbing it of the last report and the government response to it. One would think that the RTIRC site could have its own archive for each of the previous reviews containing any discussion papers submissions and transcripts together with the reports and government responses.

Hopefully this will be rectified. In the meantime I have created a repository of the reports and Government responses on the DigEcon Research website.


Novae Meridianae Demetae Dexter delenda est

I feel sorry for Kerry Stokes

Let's be clear, Sky News in Australia is a JV that not only includes News Ltd (through BShyB) but also Kerry Stokes' Seven Network and the Nine Network. So in the consideration of the Australian Network TV tender Stephen Conroy has to deal with not one but three powerful media interests - two still being "mogul" controlled.

I'm not one of those who immediately see Conroy's interest as being supporting the ABC's bid. Successive Communications Ministers have often sided with the political imperative of satisfying the moguls before supporting the public broadcaster.

But how, one asks, could the Government seriously contemplate awarding a contract for the flagship of soft-diplomacy, our broadcast of "Australian values" to the region and beyond be tainted by the involvement of an empire that is now in such disgrace.

Let's be clear this is a Murdoch issue, not a News of the World one. as the referred article notes;

The hacking scandal currently shaking Rupert Murdoch’s empire will surprise only those who have willfully blinded themselves to that empire’s pernicious influence on journalism in the English-speaking world. Too many of us have winked in amusement at the salaciousness without considering the larger corruption of journalism and politics promulgated by Murdoch Culture on both sides of the Atlantic. ...
Private detectives and phone hackers do not become the primary sources of a newspaper’s information without the tacit knowledge and approval of the people at the top, all the more so in the case of newspapers owned by Rupert Murdoch, according to those who know him best.

As one of his former top executives—once a close aide—told me, “This scandal and all its implications could not have happened anywhere else. Only in Murdoch’s orbit. The hacking at News of the World was done on an industrial scale. More than anyone, Murdoch invented and established this culture in the newsroom, where you do whatever it takes to get the story, take no prisoners, destroy the competition, and the end will justify the means.”

It is worth noting that the ownership in Sky News is NOT by the local News Limited, but by BSkyB - which in turn is part of News International (only controlled though - Murdoch is currently seeking full ownership).

Quite simply Sky News should no longer be considered on ethical grounds - which seems harsh to Seven and Nine, but unavoidable so long as Murdoch shows no contrition - or even understanding about his moral bankruptcy. Murdoch's attitude is telling as this report notes;

David Cameron was given a personal guarantee by Rupert Murdoch that Andy Coulson was safe to take on as his Downing Street press chief, The Independent on Sunday learnt yesterday, as the fallout from the News of the World phone-hacking scandal threatened to escalate into all-out war between the UK's two most powerful men.

Rupert Murdoch has survived a number of "near death" experiences in the past - all previously near financial crises. This time the stakes are even bigger - it is his own credibility that is at stake. My personal bet is that Rupert Murdoch and James Murdoch will not be senior executives at News Corp by the end of August.
Novae Meridianae Demetae Dexter delenda est

Telcos - get your act in gear

In the SMH on the weekend it was reported that the rest of the telco industry had declined an invitation to get together with David Thodey "in good faith to meet together to discuss the challenges and opportunities we face as an industry at a time of unprecedented change."

His colleagues decided to interpret the invitation entirely through the lens of "access seekers" and reject the discussion on the basis they want serious regulation, and this image is potentially reinforced by the fact that when others declined the head of Wholesale chose to interpret the act as indicating that his customers had no areas of concern.

However, Thodey was really returning to a proposition he advanced in his Comms Day Summit speech (though the speech is not on the Telstra speech site).

In that speech Thodey said;

If – as an industry – we want to get the policy settings right we must have a stronger voice. With that in mind, let me come back to the question of how our industry can play a wider role and be a catalyst for change and growth.
o If we accept that technology is changing the way we live and work …
o If we accept that – thanks to next generation networks and technologies – our industry is now at the heart of an increasingly digital nation …
o If we accept all that as a given what, as an industry, are we doing about it?

Are we – as a group – stepping up and taking a leadership position on matters of national importance?
o Do we speak with a united voice when it matters?
o Are we seriously tackling endemic issues – such as our industry’s reputation on customer service and accountability?
o Or are we still thinking like a peripheral – rather than a national – industry?

I believe we are not stepping up to this challenge well enough … The failure to use our social, economic and political capital means that we don’t receive the credit or the influence we deserve.

Ah well. At least he tried. He went on in the speech to say "One of the first areas where, as an industry, we need to start leading is customer service. Poor service undermines our public credibility." In this he is echoing the Minister who was quoted in the Sunday Age again putting the industry on notice, saying;

I sympathise with customers who have suffered poor service at the hands of the telecommunications companies. It is simply not good enough and now they are effectively on notice that if they don't improve their practices themselves, the government will step in to ensure consumers get quality customer service.

One could, of course, question whether the meeting needs to take place given that Communications Alliance exists as the voice of industry (though I can never win the argument that it is not a "peak" body, because peak bodies are made up of other bodies). It is rewarding to see that, after a period of decline, the seniority of the people who make up the CA Board is now mostly direct reports to Chief Executives. David to his credit helped us in a critical phase at AMTA by agreeing to serve on its Board after it too went through a brief period languishing under insufficient representation on the Board.

Perhaps Thodey's mistake was to not ask CA to facilitate the meal. It is a little known fact that we did try in meetings hosted by ACIFs (CAs predecessor) Anne Hurley between Phil Burgess, Paul Fletcher and myself (representing AAPT) in 2006 try to close the gap between Telstra and the G9 - an initiative I originally put to Phil in November 2005. However, Phil could never really bring any movement from Sol to the table, and Optus was always convinced everything from Telstra was a con (see Fletcher's book).

There is an old adage - if what you are doing isn't working try anything else. Thodey's idea is good as a "do anything else". If the direct invitation hasn't worked, then see if someone else can organise it.

Novae Meridianae Demetae Dexter delenda est

NBN Ad - misleading?

A big issue identified in the ACMA's Reconnecting the Customer draft report is that a lot of the customer service issues in the industry stem from the misleading nature of much of the industry's promotion.

the Government's expenditure on the NBN promotion clip has drawn attention today but the story doesn't analyse the content. Senator Conroy used the clip launching the Digital Economy strategy.

The news report mentions "Gen X and Y doesn't escape being targeted as "Travis" appears playing in a band with other musicians through the NBN" which happens in the clip at 4 minutes 30 seconds.

The issue is that the musicians are shown playing simultaneously using digital television - which doesn't allow for the timing delay from coding. In a video-conference the coding of voice and vision are synched. You'll get less delay if they are unsynchronised - but then you get the effect you get at a conference where the speaker is projected using digital television but the audio is analogue.

I'm quite happy to be corrected on this - but even at the NBN launch in Armidale they had to use slight of hand to co-ordinate two choirs.




Novae Meridianae Demetae Dexter delenda est

Digital Economy: Promise or problem

Ross Gittins in the SMH today shares some interesting research on why cities play an important role in the history of economic development.

He mostly quotes from a book called Triumph of the City.

The city is explained as a place that allows the social being that is man to magnify the economic benefits from working together - and from specialisation. This works to one of the strands I think is under played in the whole Digital Economy discussion - the consequence of new communication technology is to facilitate centralisation rather than decentralisation.

Gittins cites a study that compared the problem solving ability of a group meeting face-to-face versus only through electronic communication. Indeed the infamous "Silicon Valley" - home of much of the technology innovation that spurs the ongoing Digital Revolution - is cited in the book as an example of how cities facilitate knowledge development.

This is one of the themes I pick up in my recent working paper Digital Economy: Promise or problem?". As Glaeser says in his book;

Statistical evidence also suggests that electronic interactions and face-to-face interactions support one another; in the language of economics they are complements rather than substitutes. Telephone calls are disproportionately made among people who are geographically close, presumably because face-to-face relationships increase the demand for talking over the phone. And when countries become more urban, they engage in more electronic communications.

Establishing a Government policy that just assumes going on-line faster is better is an error. That was part of my comment earlier on bookstores, the sense that Government is just saying "do more" without inquiring into why or how.

(Note: This of course is one of the places where e-books do win hands down. Having read Gittens article I purchased the kindle edition of the book and had it in seconds.)

Novae Meridianae Demetae Dexter delenda est

The future of the bookshop

Nick Sherry got a great deal of coverage for his claim that bookshops faced an "unhappy ending".

The Minister's website doesn't include a transcript of his comments yet so it is hard to know really what he said. The fact is that he was speaking at an on-line retailing forum hosted by eBay subsidiary PayPal. eBay's CEO has been made an NBN Champion by Senator Conroy so to a large extent you'd think Sherry's comment has been scripted for the event.

Josh Gans on his blog has opined that Sherry is basically correct though suggests the timescale he suggests of 5 years is too short. But Gans at least is open to the idea of booksellers "re-inventing" themselves.

I engaged in a bit of Twitter banter suggesting the complete demise of the bricks and mortar bookstore was extreme because I liked thumbing through books - browsing is an important part of the activity. I was challenged as to what my view really is....so here goes.

Firstly, I'll refer to my posts about the demise of Borders. That was not about online, it was about the failure of the "category killer" business model.

Let's list the ways to "access" books.
1. Buy physical book in bookshop.
2. Buy physical book online.
3. Borrow physical book from library.
4. Buy e-book online.
5. Copy e-book online.

The choice between e-book and physical book as the medium of purchase is as much about the reading environment as anything else. The first observation to make is that if I buy the physical book it would be nice to also get the e-book. In non-fiction works for research there are things about spreading books out, multiple mark-up and tagging methods that just "work". but the task of reading it could be made easier by having the book "dual mode;.

The second issue is to do with "finding" books. On-line sources are very good at capturing purchasing details and using it to make suggestions. Dymocks at least has my personal purchase history on my "booklovers" card but has never used it for tailored suggestions (I guess because if I get an e-mail I'm at the alternative source). On-line sources are also good for searching for a book that you know the details of. But on-line sucks as a place to "browse"...even the Amazon "look inside" section doesn't readily give you the feel.

So to me it looks like physical shops and on-line, physical books and e-books are all part of one eco-system, not separate ones. Your financial institution transacts with you on-line and physically - a few specialists have tried to create "on-line" only models but they really are niche.

The problem in books is that my local preferred physical stores (Dymocks and Abbeys) have uninviting online presence, and if I go online I might as well go international. And here is the real issue for Australian distribution - parallel importation. If Sherry and Conroy want to promote the use of on-line retailing by Australian bookstores then they have to be allowed to access the same wholesale market as the overseas competitors. Also sometimes I find in a physical bookstore a book I only want as an e-book...I'd happily transact then and there with the bookshop, but there is no current way for me to "reward" them for helping me to find the book.

The other innovation would be to create portability in "preference" mechanisms. I'd prefer all my purchase history to be available to ALL my preferred bookstores (so add Amazon to that list). The Reading Room is potentially a site that could do that.

The "bookshop" of the future will place more emphasis on the ability to browse for books and less on the need for a large quantity of any specific volume for sale. My bookseller will support my ability to purchase on-line or physically, they will support my e-book platforms - and provide me with the e-book for any physical book I buy.

Finally if Senators Sherry and Conroy are really interested in on-line retailing, perhaps they might like to turn their attention to the question of on-line payment systems and how to "dis-intermediate" them while increasing security. PayPal is in part a response to the identified risk of providing credit card details to every on-line trader you wish to buy from. There is a completely different potential global solution. It is like an international version of B-Pay - but in reverse. Under B-Pay I am provided with a provider number and customer number to authorise a transaction. I want something that works in reverse. I want my bank to be able to give me a number that identifies the institution and then a "transaction code". That transaction code can be authorised so that only the vendor nominated can make a draw down on my account - the vendor never sees my account details - just the transaction number.


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Conroy's DE strategy

Senator Conroy released his much awaited National Digital Economy Strategy today.

The first interesting fact is the strategy #au20 is available on the nbn.gov.au website. On the belief that all acts are political I read this as the NBN is a Government strength so talking about the NBN is good.

There are three ways to talk about the strategy itself. The first is whether it is about the right thing, the second is how good it is as a strategy, and the third is the level of genuine commitment to it.

But it is bridge night - so you will just have to wait.

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The excitement builds ...

I was I think justifiably critical of the way the Budget papers dealt with Australia's future. After discussing an economy in transition the most it could find to say was a throw-away line on the NBN.

As a number of papers in a special issue of the Telecommunications Journal of Australia have noted the NBN needs to be accompanied by other strategy elements.

Tomorrow we get to hear the details. As advised via Twitter;

Remember – Min. Conroy #CeBitAUS address webcast live from via http://bit.ly/mvITcH tomorrow morning 9am 31 May #nbn #digitaleconomy (see note below)

As a foretaste of what we should hope to hear, The Economist this week ran a special on Australia. It had a excellent summary of the numbers. This was added to with a little admonition, drawing on comparisons with California, about the opportunity we face;

Australians must now decide what sort of country they want their children to live in. They can enjoy their prosperity, squander what they do not consume and wait to see what the future brings; or they can actively set about creating the sort of society that other nations envy and want to emulate. California, for many people still the state of the future, may hold some lessons. Its history also includes a gold rush, an energy boom and the development of a thriving farm sector. It went on to reap the economic benefits of an excellent higher-education system and the knowledge industries this spawned. If Australia is to fulfil its promise, it too will have to unlock the full potential of its citizens’ brain power.

Australia cannot, of course, do exactly what California did (eg, create an aerospace industry and send the bill to the Pentagon). Nor would it want to: thanks to its addiction to ballot initiatives, Californian politics is a mess. But it could do more to develop the sort of open, dynamic and creative society that California has epitomised, drawing waves of energetic immigrants not just from other parts of America but from all over the world. Such societies, the ones in which young and enterprising people want to live, cannot be conjured up overnight by a single agent, least of all by government. They are created by the alchemy of artists, entrepreneurs, philanthropists, civic institutions and governments coming together in the right combination at the right moment. And for Australia, economically strong as never before, this is surely such a moment.

That really does sum up the challenge - and much of that can be rolled into the rubric of "the Digital Economy" if by that term we mean an entire economy transformed by the digital revolution, not a subset of it (as the current Government definition has it).

The challenge for Government is real. Even those with an excessive faith in markets see a requirement for Government action - if only to further de-regulate. The economist puts it differently saying;

...government should not seek to direct the chemistry, it should create the conditions for it. That means ensuring that the economy remains open, flexible and resilient, capable ...

And while critical of the relative torpor of our Government, they also understand it, writing;

Some politicians win power and do not know what to do with it. Others come to office determined to change everything and end up doing nothing. A respectable case can be made, in certain places at certain times, for concentrating on good management and making only a few big changes, but making them well. In Australia, this case rests not just on the thoroughness of the 1983-2003 reforms but on the fact that the economy has recently passed a stress test that all other rich countries’ economies to some degree failed. The global financial crisis did not pass Australia by, but neither did it drive it into recession.

The special has a cute 3 minute video that concludes with the same line as one of the articles;

The tyranny of distance, so long Australia’s enduring curse, has been turned on its head. It is now the Antipodean advantage of adjacency.

I wonder if "the Antipodean advantage of adjacency" will catch on ... Googling however only turned up regurgitations and this piece which says;

The behavioural economics/finance guy in me has to ask the question whether the Economist magazine did indeed set out to do a hatchet job on Australia but found the story so compelling they ended up pulping their initial intent. Seems like it has to be a chance, doesn’t it?

Anyhow, let's see how the Australian Government handles it when it does address those issues about being an "open, dynamic and creative society? We can but hope.

Note: Interestingly the mini-link in the DBCDE tweet takes you to the Government's NBN site (www.nbn.gov.au) which even has an Australian Government logo (in the mode mandated by John Howard - coat of arms, Australian Government {over} National Broadband Network)

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On Gambling Part 2

Senator Conroy had to send a Departmental officer to give his speech to RadComms 2011. We were informed he was attending a meeting of State Ministers on gambling. Given that his cancellation to the ACMA looked moderately late, it can be assumed his presence at the meeting was a late addition.

But why was he there?

Simply because they announced a twelve month option for better self-regulation of gambling advertising .. or they will regulate.

Seems like a totally new idea - the newspapers don't refer to it as having been discussed at all.

The only place I've seen it has been this blog on 11 April. I'll fantacise for a da that I really had this much influence... I'm sure someone will correct me.

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DE - The Excitement Builds

Only a week to go till Stephen Conroy is due to unveil his Digital Economy strategy - at CeBIT is the expectation. While I said some unkind things about how poorly the Budget papers dealt with the DE agenda, I'm led to believe that the strategy will be substantive.

I am currently writing a piece that talks about the narrative of the "Digital Economy" more generally though. Hopefully it will be ready to appear just after the strategy.

But Australia is not alone in ruminating on DE issues.

In France President Sarkosy is hosting a two-day forum which will bring opposing views of the need to regulate the internet economy. In canada the former Government CIO has said all three levels of government will have to be more collaborative and focused if they want to realize their goals around improving service delivery.

Meanwhile closer to home Malaysia is reportedly "embarking on an innovative digital economy framework that will culminate in the development of a Digital Malaysia Masterplan". In the USA though the latest call is for skilling minorities for digital entrepreneurship (which I think means something other than giving authority the finger in novel ways).

The Digital Economy is definitely "in vogue".

What does Senator Conroy have in store for us?





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NBN Champions

The distressing fact about the NBN remains the fact that whether we need it remains "contested ground". Malcolm Turnbull continues to make inroads by repeating that no one can tell him why every household needs 100Mbps. He might like to reflect on the fact that when he first ran OzEmail and all customers used 300bps he probably couldn't have imagined why anyone would even need 1Mbps.

News today that the Government is planning a campaign based on twelve NBN champions. Pity that one of the names, Rosemary Sinclair, has already resigned as CEO of ATUG.

The item continues;

Details of the campaign are expected next month, when the government is set to unveil a strategy for turning Australia into a ''world-leading'' digital economy by 2020, when the network is due to be nearly complete.

Under the national digital economy strategy, the government has pledged to introduce policies that will help households and businesses make the most of the network, as well as providing a "road map of what an NBN-enabled world will look like"

This is a much looked forward to announcement planned for late May by Senator Conroy. This is the next stage following the string of Digital Economy initiatives. The current foundation stone of that is the document Future Directions of the Digital Economy.

I have a distinct disagreement with the government over the definition of the Digital Economy, and as a consequence the correct policy response.

The Government defines the Digital Economy as;

The global network of economic and social activities that are enabled by information and communications technologies, such as the internet, mobile and sensor networks.

As a definition this at best defines part of the economy. Its limitation is the failure to recognise ICT as a General Purpose Technology (GPT) and hence that ALL economic activity is impacted or enabled in some way. A farmer who uses the Bureau of Meteorology website to access a weather forecast to decide when to plant or harvest is engaged in a digital economy activity.

To see the distinction imagine if we defined the Industrial Economy as the global and social activities enabled by the steam engine, internal combustion engine and electric motor?

The change from an agricultural society to the modern industrial society that accompanied these technologies has not just been one of degree (i.e. of productivity), but of kind. Both capitalism as we know it, and democracy as we know it were products of the industrial revolution.

Phillip Bobbit's thesis is that ICTs were one of the two defining technologies (along with weapons of mass destruction) that brought the long war from 1914 to 1990 to an end. The question he then poses is what does the "constitutional order" of the market state look like.

There is plenty of evidence that the societies that work out the constitutional order for new epochs (to use Marx's term) first are the most successful.

The Government in its strategy states;

The key elements to a successful digital economy are a Government that is digitally aware and enabling; industry that is digitally confident, innovative and skilled; and a community that is digitally empowered and literate.

To that needs to be added "a Government and society that are prepared to examine the implications of the digital economy on the organisation of the economy and to react positively to the change."

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Nonsense in communications land

Grahame Lynch, the publisher of Communications Day, has written in the Oz today on the NBN. He opens;

If one can't get one's history right, then one probably can't be trusted to get the future right.

The basis for his assertion that Conroy can't get the history right is that NBN 1.0 was cancelled because "the non-Telstra bids were all rejected because they lacked 'value for money'". But asserts that Conroy never referred to the compensation issue.

Lynch is wrong.

The Minister released an extract of the Expert Panel report with the decision on 7 April 2009. In that, the panel noted a range of reasons why none of the proposals represented value for money, and these included the fact that the development in technology meant FTTN was no longer a cost-effective half-way house to FTTH, that no one really met the coverage requirement and a cost risk that was described as;

As well, providing such access to a party other than Telstra runs a risk of liability to pay compensation to Telstra. The Proposals have this risk remaining with the Commonwealth but they have not addressed the potential cost to the Commonwealth of any such compensation. In any event, the Panel considers that no Proponent could accept the cost risk and continue to have a viable business case.

I suggest Lynch and the "many informed observers" should get better at reading actual documents rather than what they choose to believe.

As for NBN 1.0 being fully costed at $9B, the fact is it was on the assumption that Telstra would participate. After all, why not accept $4.5B in outside investment to replace your access network, retire your class 5 voice switches and expand the broadband market? The only reason you wouldn't would be if you were Sol and Phil.

I actually maintain there were two fundamental errors made by Conroy's Department in the whole exercise.

The first was that they continued the Howard Government approach of thinking the best value was achieved by a contest between Telstra, the G9 and any other bidders. The phrase "competitive tension" was used repeatedly - and even approvingly by the ANAO report. But the "loser" of the tender had to become a customer of the "winner"? That is not the standard for a competitive tender. Actually the Department needed to drive Telstra and the G9 TOGETHER rather than apart.

The second error was the failure to be clear enough that one of the objectives was structural reform. The tender document itself simply listed the extent to which the proposal delivered separation as one of a number of (unweighted) factors that would be used to make the decision. As a consequence Telstra thought they could get it removed as an objective.

The stoush leading to the shortened bid included Telstra effectively demanding that separation be taken off the table before they would bid. They should never have been able to think that was an option. It was the structuring of the tender document and the inability of the Department to really say it was non-negotiable that left Telstra believing it could be achieved.

Phil Burgess on Four Corners talked about Telstra's reluctance to hand over their confidential information;

PHIL BURGESS: Our proposal was real, it wasn't brochure aware, it wasn't just a spin, it was something concrete on which we'd spent hundreds of millions of dollars. We were not going to turn all those plans over to the Government without guarantees. They want us to open the kimono on everything that we had done without any guarantees that our intellectual property would be protected.

STEPHEN CONROY: Well look, Telstra knew what the rules of the tender were. Everybody else supplied thousands of pages of market sensitive information, and Telstra took their decision under their former leadership that they were going to in effect call the government's bluff.

The reality was that Telstra's concern was that the information they would provide would have facilitated the Government's implementation of a separation decision. It wasn't about the IP in the plans themselves, after all that was mostly Alcatel-Lucent's anyway!

Meanwhile lurking in the middle of the whole story was the real policy change no one has noticed. Phil Burgess says of negotiations with the ACCC (in 2007);

Graeme Samuel just arbitrarily marked things off. He didn't base it on studies, he didn't base it on expert opinion. When you have a rogue regulator that doesn't play by the rules, when those kinds of things happen then the taxpayer ends up footing the bill.

The substance of that complaint was that the ACCC would NOT AGREE to Telstra's request that ULL pricing be nationally averaged. Yet a key part of Conroy's NBN policy is a nationally averaged wholesale price. That is the truly amazing policy shift and as yet totally unremarked in the commentary.

Anyhow, taking Lynch's opening line at face value, I now know that he doesn't expect me to put any credence on his forecasts.

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The prescient Brian Perkins and NBN tale

I had the pleasure of attending the ATUG Gala Awards Evening and Conference last week.

I happened to be talking to last year's Charles Todd Medal winner (The Hon Senator Stephen Conroy, Minister for DBCDE), when this year's winner (Macquarie Telecom's David Tudehope) came over to introduce a former winner, AAPT's Brian Perkins.

David rightly introduced Brian as a role model for all the entrants who came after him. But I was able to trump that by saying Brian was also prescient. In AAPT's move from one end of George St to another various documents were being disposed of, but the secretary to the CEO, Rosemary Robinson, knew I liked history and sent some my way.

Included in it was a memo from Brian to AAPT CEO Larry Williams dated 4 August 1993, in which he says he was asked at ATUG what his views were on the Government's plans to initiate a fibre-to-the-home project.

He notes that ATUG submitted to the the ROSA review that Telecom be separated into three companies, but that the Government had opted for accounting rather than structural separation. He writes;

ATUG should propose a stand-alone company whose responsibility is to provide and operate an efficient and cost-effective fibre distribution network which will meet the needs of Australian service suppliers and users into the 21st century.

(Note: The note also makes reference to the troubles AAPT had in getting its 1414 access code configured. Technically the 1991 Act did not require the provision of PSTN Ingress and Egress (as it was then known - hence the PIE model), in fact, the view in Telecom was that to provide it was illegal. This did not stop then Minister Grahame Richardson ringing then GM CCD Sales John Brennan (who had responsibility for AAP as an account) and saying that Telecom had to "fix it or it was your job". Brennan passed it up the chain.)

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KM in the Oz

Kevin Morgan in the Oz today tries to neatly dust off a diatribe delivered through the pages of Communications Day yesterday. He seems to forget what he battled for all those years ago at the ACTU - which was Government control and social outcomes - and to have instead thought his mission was to preserve the behemoth Telstra.

The so-called "world wide" trends Australian governments followed in our deregulation cycle started in the UK, NZ and Australia. We were in the vanguard not the cravan. Just as we are now.

The single biggest achievement of the NBN policy is the structural reform of the industry that was not completed prior to privatisation - largely due to a union backed campaign by Telstra. Conroy to his credit has pursued this single mindedly. It was the one thing Telstra under Sol demanded be dropped to secure Telstra's participation in 2008, and Conroy, unlike every Comms Minister for the last fifteen years stood up to Australia's largest totally domestic corporation and chose consumers and public interest over thuggery.

In response to his longer piece in Comms Day I have written and submitted the following.

It is disappointing that my fellow student of telco policy history Kevin Morgan is prepared to be so wrong in his recollection of the seventies – and indeed the eighties.

We can ignore little things like Telecom getting a monopoly in the “1976 Act” when the Act was 1975, the same year Telecom was formed and Telecom2000 saw the light of day. The single biggest technology change that the report missed was not the growth of wireless but the development of the PC. While it did see a broadband fibre based future it was in either a circuit switched or broadcasting mode.

In his prelude to discussing the Davidson Inquiry, Kevin writes “Telecom could no longer rely on the Budget to support investment plans”. Unfortunately he is one of the few people who I know knows that Telecom had seen no support from the Budget for anything since 1959, the year that the PMG was required to become self-funding. The entire $4.5B debt of the PMG was assumed by Telecom Australia.

He is right to note that the Hawke Government did increase the interest rate payable by Telecom on that debt. Unfortunately for his argument though the discrepancy between the 13% and 7% is entirely explained by the difference in the applicable Government Bond (or risk free capital) rates then and now.

He goes on that “As Telecom became capital constrained in the late 1980s the fibre vision waned.” The fibre vision however at that time had been extinguished by the successful lobbying by the free to air television moguls against Pay TV. Pay TV only re-emerged on the policy horizon – according to Mark Westfield’s The Gatekeepers – at the insistence of Richard Li, then still working for his father at Hutchison. He told the Minister that there was no interest in bidding for AUSSAT if they couldn’t do Pay TV.

Finally, I was left confused by the foray into laws of physics and laws of economics. Wireless isn’t “challenging the laws of physics” – it is actually conforming to them. No part of standard electromagnetic theory has yet been challenged by the development of wireless, and even the information theory of the Shannon limit isn’t even tested.

The non physical laws of relevance are Moore’s Law that the capacity of microprocessors doubles every eighteen months and Cooper’s Law that the capacity of wireless systems doubles every thirty months – wireless capacity keeps falling behind demand which is why there are ever greater demands for more spectrum. The CEO’s of the three mobile networks – Thodey, O’Sullivan and Dews – are all on the record stating that wireless networks cannot meet the bandwidth requirements of citizens.

As for the economics of monopoly, there are plenty of examples where one technology has monopoly characteristics but inter-modal competition can be sustained. We have one electricity distribution network in our suburbs, and no one suggests we duplicate it. We have in some places one gas network, and no one suggests we duplicate it. But they compete to carry energy to premises, energy that has different features and characteristics (or strengths) just as fibre and wireless do.

Kevin started his piece with the saying that if you can remember the seventies you weren’t there. The real saying though is about the sixties and is variously attributed to Grace Slick, Robin Williams and others. What does it say about me that I too have a bookcase full of reports from the era, but my copy of In the Court of the Crimson King is a CD (a girlfriend used to own the record).

NOTE I hope to have a copy of Telecom 2000 up on the DigEcon website in the next day!

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