I need to take more time to digest what is in the NBn Co SAU. But henry ergas has chimed in today with a contribution that implies the SAU guarantees increasing prices rather than merely an envelope that increases below which prices will remain.
The egregious part is the comment
That, of course, won't happen. Rather, the government has demonstrated its willingness to sacrifice every principle of sound public policy to get its way. It can, and likely would, try to direct the ACCC to accept the most offensive aspects of NBN Co's SAU.
He knows that the ACCC legislation specifies that the Minister CAN NOT direct the ACCC in the application of Part XIC of the (now) Competition and Consumer Act.
The most recent example was the NBN PoI decision where the Government and NBN Co both favoured the 5 PoI outcome but the ACCC selected the 121 PoI outcome.
He also errs in his accusation that the NBN Co's differential prices by speed differs from the flat rate pricing of the ULL. With ULL the customer buys the WHOLE pair (or in LSS all the above voice frequency). With NBN Co each premise has 100 Mbps of capacity which can be acquired by different providers. I can buy 4 12/1 services from different ISPs and have them delivered to the same NTU.
Better analysis is required on all sides of the NBN model. The false accusation of rising prices needs to be dismissed.
(Note: by the same token NBN Co should have figured that the price rise reference would result in these accusations, another example that they just haven't got their act together yet)
Novae Meridianae Demetae Dexter delenda est
Showing posts with label Ergas. Show all posts
Showing posts with label Ergas. Show all posts
Friday, August 26, 2011
Friday, August 19, 2011
A rarity - a measured Ergas piece
A good column today by Henry Ergas. He does a very good job of explaining why the property right in real estate is not the unconstrained right that people sometimes think it is or should be.
I think I marginally disagree with him on the politics though of why the Federal and State Governments might take different views to "developers". Nice to see though the acknowledgement of the central role of Government in both defining rights and in managing interests where markets would be ineffective in managing rights.
All way too complicated for his primary target - Tony Abbott - to understand though. As a Syd U alumnus and Rhodes Scholar he clearly used to be an intelligent man .... but he seems to have stopped thinking somewhere along the line.
Novae Meridianae Demetae Dexter delenda est
I think I marginally disagree with him on the politics though of why the Federal and State Governments might take different views to "developers". Nice to see though the acknowledgement of the central role of Government in both defining rights and in managing interests where markets would be ineffective in managing rights.
All way too complicated for his primary target - Tony Abbott - to understand though. As a Syd U alumnus and Rhodes Scholar he clearly used to be an intelligent man .... but he seems to have stopped thinking somewhere along the line.
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
Wednesday, April 06, 2011
Politics, Economics and Climate Change
Following the idiotic controversy over the comments of Kevin Rudd on climate change it is time for some more analysis of the fundamentals.
Writing in the SMH today Jessica Irvine did a very good job of describing the difference between "income effects" and "substitution effects" of a tax on a specific good, and how you could both impose a tax and pay compensation and hence get a change in behaviour.
She notes that Tony Abbott has said "At best it's a giant money-go-round" but retorts "Sorry Tony, but good economists know better."
In this she is putting more economic theory around the straight-forward explanation that I praised the PM for in her appearance on Q&A.
But is the economics as simple as that? There are two ways of pricing carbon - one is the straight tax, the other is emissions trading. The latter is the ultimate economic orthodoxy on dealing with a negative externality. We lost that because the Greens didn't support it, not because of the coalition.
The Greens have preferred the tax route because they want to spend money directly on climate abatement programs. Gillard has been forced to go the direct tax route because that is the price of Greens support.
All of which makes the slagging off about the Greens and economics interesting. Gillard thinks they "wrongly reject the moral imperative to a strong economy", Albanese says they "tend to be a grab-bag of issues, tend not to have a coherent policy that adds up" while (M) Ferguson says they want to "sit under the tree and weave baskets with no jobs".
Yet the Greens are closer in their policies to the prescriptions of the Henry tax review than anyone else on death duties, health rebates,and higher taxes on super profits.
The criticism of either emissions trading or a carbon tax has a very wide support base - because people just don't understand how it works.
Frank Stilwell in a thoughtful piece outlined a very good reason for this lack of belief in response to price. He wrote;
In the real world market responses can operate quite differently. For example, you would expect to see a market disincentive incentive effect happening now as the price of petrol rises to $1.50 a litre and beyond. However, I don't observe less crowded roads. The availability of good, readily available alternatives to the car is a precondition for getting people to switch. And those alternatives do not just arise spontaneously.
To put it bluntly - for their to be a substitution effect there has to be a satisfactory substitute. In the case of carbon those substitutes will take time to be available.
Industry has argued that it won't make the investments in the alternatives until there is certainty on the price for carbon. But as Henry Ergas has neatly argued (yes I said that)there are reasons why investors should not have faith in the price for carbon being increased to reach the desired levels.
There is nothing in the mere fact of introducing an MBM that irrevocably commits to steadily and progressively increasing the implied tax on emissions. Moreover, it would not be rational for a potential investor in technology development today to assume such an increase in the implied tax rate would indeed occur.
This can be seen by considering two broad scenarios.
In the first, the technologies needed to dramatically reduce emissions do not become available in the relevant future. In that event, it is implausible that governments, merely so as to honour commitments made many years earlier, would increase tax rates on emissions to levels that would cripple their economies. Rather, the likelihood is that any commitments made would be revised or ignored, so that effective tax rates on emissions would remain low.
In contrast, in the second scenario new effectively decarbonised technologies become available at some relevant future date. In that event, governments could, if they so chose, abide by commitments to substantially increase the tax on carbon; however, it is still unclear whether they would do so.
This is quite simply because once those technologies are available, even a modest tax will suffice to create an incentive for their deployment in the marketplace.
While much of this is the kind of reasoning Jessica Irvine pointed out explains why an economist will not bend down to pick up a $100 note (if it were really someone would have already picked it up). But it does flag the fact that there are plenty of reasons why the tax MAY NOT (rather than will not) have the desired behavioural effect on R&D investment.
The error here is probably in thinking that the solution has to be exclusively one or the other - either pricing carbon or merely regulating industry, or regulating down output while compensating for investment in alternatives (the latter being as best I can understand the Abbott alternative).
It seems to me that the best outcome is a bit of everything.
Oh, and one final point for the "we shouldn't act unilaterally brigade". Irrespective of climate change the world's fossil fuel reserves continue to decline. Investing now in creating new energy industries from Australia's abundant resources is the way to building new comparative advantage for the future.
Novae Meridianae Demetae Dexter delenda est
Writing in the SMH today Jessica Irvine did a very good job of describing the difference between "income effects" and "substitution effects" of a tax on a specific good, and how you could both impose a tax and pay compensation and hence get a change in behaviour.
She notes that Tony Abbott has said "At best it's a giant money-go-round" but retorts "Sorry Tony, but good economists know better."
In this she is putting more economic theory around the straight-forward explanation that I praised the PM for in her appearance on Q&A.
But is the economics as simple as that? There are two ways of pricing carbon - one is the straight tax, the other is emissions trading. The latter is the ultimate economic orthodoxy on dealing with a negative externality. We lost that because the Greens didn't support it, not because of the coalition.
The Greens have preferred the tax route because they want to spend money directly on climate abatement programs. Gillard has been forced to go the direct tax route because that is the price of Greens support.
All of which makes the slagging off about the Greens and economics interesting. Gillard thinks they "wrongly reject the moral imperative to a strong economy", Albanese says they "tend to be a grab-bag of issues, tend not to have a coherent policy that adds up" while (M) Ferguson says they want to "sit under the tree and weave baskets with no jobs".
Yet the Greens are closer in their policies to the prescriptions of the Henry tax review than anyone else on death duties, health rebates,and higher taxes on super profits.
The criticism of either emissions trading or a carbon tax has a very wide support base - because people just don't understand how it works.
Frank Stilwell in a thoughtful piece outlined a very good reason for this lack of belief in response to price. He wrote;
In the real world market responses can operate quite differently. For example, you would expect to see a market disincentive incentive effect happening now as the price of petrol rises to $1.50 a litre and beyond. However, I don't observe less crowded roads. The availability of good, readily available alternatives to the car is a precondition for getting people to switch. And those alternatives do not just arise spontaneously.
To put it bluntly - for their to be a substitution effect there has to be a satisfactory substitute. In the case of carbon those substitutes will take time to be available.
Industry has argued that it won't make the investments in the alternatives until there is certainty on the price for carbon. But as Henry Ergas has neatly argued (yes I said that)there are reasons why investors should not have faith in the price for carbon being increased to reach the desired levels.
There is nothing in the mere fact of introducing an MBM that irrevocably commits to steadily and progressively increasing the implied tax on emissions. Moreover, it would not be rational for a potential investor in technology development today to assume such an increase in the implied tax rate would indeed occur.
This can be seen by considering two broad scenarios.
In the first, the technologies needed to dramatically reduce emissions do not become available in the relevant future. In that event, it is implausible that governments, merely so as to honour commitments made many years earlier, would increase tax rates on emissions to levels that would cripple their economies. Rather, the likelihood is that any commitments made would be revised or ignored, so that effective tax rates on emissions would remain low.
In contrast, in the second scenario new effectively decarbonised technologies become available at some relevant future date. In that event, governments could, if they so chose, abide by commitments to substantially increase the tax on carbon; however, it is still unclear whether they would do so.
This is quite simply because once those technologies are available, even a modest tax will suffice to create an incentive for their deployment in the marketplace.
While much of this is the kind of reasoning Jessica Irvine pointed out explains why an economist will not bend down to pick up a $100 note (if it were really someone would have already picked it up). But it does flag the fact that there are plenty of reasons why the tax MAY NOT (rather than will not) have the desired behavioural effect on R&D investment.
The error here is probably in thinking that the solution has to be exclusively one or the other - either pricing carbon or merely regulating industry, or regulating down output while compensating for investment in alternatives (the latter being as best I can understand the Abbott alternative).
It seems to me that the best outcome is a bit of everything.
Oh, and one final point for the "we shouldn't act unilaterally brigade". Irrespective of climate change the world's fossil fuel reserves continue to decline. Investing now in creating new energy industries from Australia's abundant resources is the way to building new comparative advantage for the future.
Novae Meridianae Demetae Dexter delenda est
Thursday, February 25, 2010
NBN Co legislation
Oh dear. I thought telco policy had moved on from the days when every piece of policy was scrutinised through the lens of its implication for telco privatisation, but today it appears it is still the case that commentators only look at the implication of NBN policy from its impact on Telstra.
The Government yesterday released exposure drafts of the NBN Co legislation. Firstly that is a great step and much better than, say, the Howard Government's final Telstra privatisation Bill wich was introduced with no consultation and gave industry one day to prepare for a one day Senate hearing.
But both the Oz and the SMH report the provision in the Bill that the Minister can authorise NBN Co to sell dierectly as a threat to Telstra. The conclusion is reached because of references to Government Departments.
The reality is that, firstly, Government Departments are big customers in terms of revenue but very poor in terms of profit - simple because they have been big enough to get most of the benefits of competition that exist so far. Secondly the real concern here is that the ability to do things like e-health and e-education shouldn't be impeded by the need to deal with service providers. This isn't about Government using the NBN to connect to its premises, but to citizens.
Meanwhile I note in industry newsleter Communications Day the speculation on the fate of the other current bill, the one that does seek to split Telstra. They write in part;
The government’s desire to separate Telstra originally appeared set to split the coalition, with Nationals Senators Fiona Nash and Barnaby Joyce advocates of separation while Liberal colleagues rallied against any split. However, the Nationals are now set to vote on coalition lines with Joyce in shadow cabinet and both Senators determined to force the government to reveal numerous secret documents relating to the original NBN process. CommsDay understands that Joyce and Nash could still push for a Telstra split at a later date – but not until Conroy releases the McKinsey/KPMG NBN Implementation Study, due to be delivered to the minister by the end of the week.
I can fully understand that the new world order of the coalition prohibits them splitting on the issue. But the new world order should perhaps contemplate a change in their approach to communications policy, just as it did a change on climate change policy. As it stands today the coalition has no communications policy other than to say no, or perhaps that OPEL was better.
It is interesting to note that they never demanded an ANAO report on the cancellation of that contract. That's perhaps because they are afraid that not only will it find the Government was right to cancel it because the conditions precedent were not met, but that the ANAO would likely find that he contract should never have been entered into.
Meanwhile after the replacement of Minchin with Smith the coalition still hasn't progressed on communications policy. Conroy used to count the number of releases Minchin had come out with without a single policy proposal. Smith isn't doing any better.
Perhaps these were the kinds of people new leader Tony Abbott was addressing when he's asked them to "use their brains" at his policy roundtable on Friday. Not much chance of decent communications policy if (a) it is only Liberals, and (b) Henry Ergas is in the room.
Finally, the coalition seems to wrap themselves in a sanctimonious flag of demanding the release of certain documents prepared for advice to government. First it was the expert panel report and now it is the implementation study. In Government the coalition never released such documents. Holding Government to account means holding them to account on outcomes not second guessing the decisions.
I hope the Nationals find the courage to go to the coalition meetings and say that the cause of improved telecommunications to regional Australia is not advanced by an opposition who simply refuses to debate legislation, or opposes legislation such as structural separation (a long held National Party view) or fibre to the home (which was the core of the Page Centre report).
The Government yesterday released exposure drafts of the NBN Co legislation. Firstly that is a great step and much better than, say, the Howard Government's final Telstra privatisation Bill wich was introduced with no consultation and gave industry one day to prepare for a one day Senate hearing.
But both the Oz and the SMH report the provision in the Bill that the Minister can authorise NBN Co to sell dierectly as a threat to Telstra. The conclusion is reached because of references to Government Departments.
The reality is that, firstly, Government Departments are big customers in terms of revenue but very poor in terms of profit - simple because they have been big enough to get most of the benefits of competition that exist so far. Secondly the real concern here is that the ability to do things like e-health and e-education shouldn't be impeded by the need to deal with service providers. This isn't about Government using the NBN to connect to its premises, but to citizens.
Meanwhile I note in industry newsleter Communications Day the speculation on the fate of the other current bill, the one that does seek to split Telstra. They write in part;
The government’s desire to separate Telstra originally appeared set to split the coalition, with Nationals Senators Fiona Nash and Barnaby Joyce advocates of separation while Liberal colleagues rallied against any split. However, the Nationals are now set to vote on coalition lines with Joyce in shadow cabinet and both Senators determined to force the government to reveal numerous secret documents relating to the original NBN process. CommsDay understands that Joyce and Nash could still push for a Telstra split at a later date – but not until Conroy releases the McKinsey/KPMG NBN Implementation Study, due to be delivered to the minister by the end of the week.
I can fully understand that the new world order of the coalition prohibits them splitting on the issue. But the new world order should perhaps contemplate a change in their approach to communications policy, just as it did a change on climate change policy. As it stands today the coalition has no communications policy other than to say no, or perhaps that OPEL was better.
It is interesting to note that they never demanded an ANAO report on the cancellation of that contract. That's perhaps because they are afraid that not only will it find the Government was right to cancel it because the conditions precedent were not met, but that the ANAO would likely find that he contract should never have been entered into.
Meanwhile after the replacement of Minchin with Smith the coalition still hasn't progressed on communications policy. Conroy used to count the number of releases Minchin had come out with without a single policy proposal. Smith isn't doing any better.
Perhaps these were the kinds of people new leader Tony Abbott was addressing when he's asked them to "use their brains" at his policy roundtable on Friday. Not much chance of decent communications policy if (a) it is only Liberals, and (b) Henry Ergas is in the room.
Finally, the coalition seems to wrap themselves in a sanctimonious flag of demanding the release of certain documents prepared for advice to government. First it was the expert panel report and now it is the implementation study. In Government the coalition never released such documents. Holding Government to account means holding them to account on outcomes not second guessing the decisions.
I hope the Nationals find the courage to go to the coalition meetings and say that the cause of improved telecommunications to regional Australia is not advanced by an opposition who simply refuses to debate legislation, or opposes legislation such as structural separation (a long held National Party view) or fibre to the home (which was the core of the Page Centre report).
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