Showing posts with label Optus. Show all posts
Showing posts with label Optus. Show all posts

Tuesday, October 25, 2011

The Sorry State of Telco Regulatory Affairs

I probably need to do a longer piece on this, but saying as I do there is a sorry state in Telco regulatory affairs will win me no friends. Indeed, it might even find a few people ready to hurl personal accusations about me as being "bitter" over some imagined slight.

The reality is that the state of affairs I describe is one which is driven by the same set of issues that drove the GFC (the corporate focus on the short-term outcome) and the political values of Grahame Richardson (whatever it takes).

My first case is the Mobile Terminating Access Service (MTAS) and the ACCC's process for reaching a Final Access Determination (or FAD).

The process of the ACCC setting Access Determinations was the final abandonment of the approach that initially promoted self regulation (through the TAF) and "guided" market mechanisms (negotiate-arbitrate). The experience with both of these is worthy of analysis of their own on another occasion.

The position we now have is of a central price setting regulator with limited opportunity for judicial review of decisions. The first ACCC guidance on MTAS pricing principles was to utilise a retail benchmarking approach, that access fees had to decline at the same rate as retail prices. The consequence was actually a temporary stall on price competition, as the effect of a price decline for an operator were magnified.

The Commission's next approach was based on top-down cost models from two operators. These models in one case included a highly fanciful claim for a recovery of a notional fixed line externality through a "Rohlfs-Griffin" effect, and a claim for Ramsey-Boiuteux recovery of common costs. I say fanciful because the first exercise relied upon a number of parameters that had to be guessed, not just because they hadn't been estimated but because there is no methodology to measure them. It was also fanciful because it only introduced half the externalities present in the market. The R-B pricing was fanciful because instead of estimating an Australian set of own price elasticities they used the average of various studies from other markets. They then applied these - which had been estimated using a constant elasticity assumption - to a model with a linear demand curve (where the elasticity varies along the curve).

The Commission then commissioned a bottom-up model from WIK. As I wasn't actively engaged at that time I never analysed the WIK model.

The Commission commenced its current inquiry with a radical discussion paper that considered (1) the prospect of moving to LRIC rather than TSLRIC+ pricing, (2) the option of pricing mobile-to-mobile termination differently from fixed-to-mobile and (3) the option for a "pass through" mechanism of declining MTAS rates on fixed-to-mobile calling.

A consequence of the appeal to LRIC (which really takes common costs out of the equation) is an erroneous presumption that in the long run the cost of terminating a call is zero. The most egregious part of this is the error of assuming that as a curve approaches zero then it eventually reaches it, but the zero line is an asymptote of the curve and really is never reached. The per call cost approaches zero because, in part, of increasing volumes. If calls cost 0.001 cent per minute but there are billions (or trillions) of minutes then the payment owed is still positive and significant.

The draft decision thankfully walked away from all three "radical" endeavours, but in doing so has inadequately supported the prices it has determined. This creates the image of the ACCC as a capricious regulator.

Nowhere is this more apparent than in the F2M pass though argument, where Telstra has provided evidence to the Commission that its net take on fixed calling after costs has declined not increased. The ACCC could have done that investigation itself using its investigatory powers but has declined to do so. They also seem to have declined to even acknowledge the point Telstra has made. Mind you, Telstra seems to have insisted on keeping these details Commercial-In-Confidence even though they probably don't meet the formal definition (i.e. there is nothing in the data which would aid Telstra's competitors). (Note I provided a very simple version of Telstra's argument using publicly available data).

Meanwhile, Optus and Vodafone who both complain MTAS reduction without F2M pass through is a free kick to Telstra have not explained why if it is such easy money they haven't entered the market (in Vodas case a very simple F2M product by override code for existing Voda mobile customers would be relatively inexpensive to create, in Optus case add an F2M only override product).

Macquarie Telecom goes to a whole other plane of idiocy. They carefully argue that they don't actually acquire the MTAS (because they are a switchless reseller) and that the product they buy costs more than the sum of PSTN originating access (0.95c/min) and MTAS (9c/min). They don't seem to acknowledge that there is obviously a cost incurred in turning the two access components into a call, they also don't seem to contemplate the obvious answer - if you believe the cost of doing that is less than the difference between the sum of the access fees and what you pay for an FTM call, then bloody well just build the infrastructure.

The complete flip-side of that is Lycamobile pointing out that as an MVNO they are paying their wholesale provider an "airtime" rate for originating and terminating calls and that they are recipients of MTAS fees, so the decision results in a price squeeze on them. Well hello, whatever made you think MTAS wouldn't decline in the future? Have you got a regulatory events clause in your contract to trigger a renegotiation right? If not, go sue your lawyers and leave the ACCC alone.

The submissions are all the classic worst case of self-interest submissions that are not framed on the basis of an established view of how the market should operate, but instead focus on the specific "ask" of their business. These reflect the operation of the regulatory craft as something that takes instruction "from the business" rather than is intimately involved as the expert on the external environment on the development of strategy.

The ACCC deserves to be resoundly criticised for the way it has handled the MTAS determination thus far, but equally the submissions from industry players do little to handle the ACCC to account.

Nowhere, however, is the sorrt state of affairs more apparent than in the bleating by Internode (among others) of wanting to be "compensated" for the stranded asset of their DSLAM investments. The assets were not deployed like an HFC network with a thirty year or more life expectancy, more likely 2 to 3 years. None of them need to be retired immediately. The "exchange exit cost" has always been something they need to consider as a future liability.

Novae Meridianae Demetae Dexter delenda est

Thursday, September 29, 2011

More on the ABS Internet Activity Statistics

The old adage referred to in my earlier post on these statistics was the "lies, damned lies and statistics" line. The point being that popularity wasn't just based on subscriber numbers but also on downloads.

The other interesting thing to do is to compare the ABS stats to other data sources.

This release is the first time in a while that the stats have actually given a distribution of all the ISPs by size. The interesting thing is to compare this to the number of service providers that are members of the TIO that claim to be ISPs or TISPs (the latter meaning they provide telephone and Internet services - like Telstra).

The chart below shows that the ABS numbers are well below the total number of merely ISPs let alone those service providers who are either ISPs or TISPs.


The chart might suggest significant under-counting by the ABS. Another comparison we can do is between the ABS fixed broadband number and the total fixed broadband services on either Optus HFC network or Telstra's HFC or copper network. The latter appear in Telstra's results as part of their retail SIOs with HFC, as the fixed BB wholesale, the ULL and the SSS numbers.


The closeness between the two data series is probably not really a good thing as the Telstra+Optus data leaves out Transact and others. But still - the gap is not terribly massive.

Understanding DSL is a little bit harder as you need to estimate how much of Telstra's Fixed BB SIOs are DSL and how many cable. I've used the crude approach of subtracting the Optus HFC number from the ABS total cable and fibre number to get a Telstra retail estimate. The Optus data is their on-net and off-net DSL base. The Telstra and Optus numbers are stacked, the ABS line is their total DSL.


A similar analysis can be done of broadband mobile wireless. Once again the Optus number is stacked on the Telstra one, while the ABS line is total market. The remainder is essentially Vodafone, resellers (except Virgin which is consolidated in the Optus number I believe) and the vividwireless base.


Finally the narrowband data can be compared, as it is below using the same approach.


Adding other providers is problematic as some don't release a lot of data, but I will expand the data set. I might not republish till after the ABS releases the December 2011 data in about April next year.

Novae Meridianae Demetae Dexter delenda est

Wednesday, September 28, 2011

Josh Gans sets the challenge

Joshua Gans seems very pleased that his whole interview with Alan Jones went to air.

He made a point that no submission to the ACCC has said "Gans and Hausman are idiots". That is true - my comments thus far have been reserved for my iTnews column titled When smart people say dumb things.

Meanwhile other submissions in the same proceedings are reported to claim that Telstra's separation proposals do not go far enough.

It is an unfortunate fact for Optus that there is such a thing as the public record. The fact that Telstra's structural separation is progressive over the life of the NBN deployment is not new; it is a consequence of the legislative prescription.

To the Senate committee inquiry into that Bill Optus submitted;

If implemented in its present form, Optus considers that the reform package will provide the foundation for stronger competition to emerge in the fixed line sector.

The Competitive Carriers Coalition was at least alert to the issue, but recognised the difficulty of concluding both a functional and structural separation. They submitted;

The CCC suggests that the ACCC be given guidance that any undertakings show how the management of Telstra’s wholesale business will be organized to remove incentives to iscriminate during the period of a staged separation, and to that the guidance detail certain minimum requirements.

However, the facts as I understand them is that the legislation was not so amended.

Meanwhile, I'm really looking forward to round 2 of Jones and Gans. Jones invited Gans to agree that the ACCC was an inadequate regulator as it hadn't acted on the Coles/Woolies duopoloy nor "shop-a-dockets". I suspect Gans' view here is closer to the ACCC than Jones - though I also wonder if anyone has explained the Metcash decision to Jones.

Note: I must admit to finding a certain irony to the joint submission by Professors Hausman and Gans. I had an "altercation" in a previous life with Hausman. He had written a submission for Optus on regulation of mobile terminating access. I commissioned Josh Gans to write a report on the Hausman submission.

Needless to say he did an excellent job....so much so that Professor Hausman complained to my parent company about "friendly fire" as he had written a very similar report for them in New Zealand. And yes, the Commerce Commission did in the end use the report I commissioned from Josh Gans to critique my parent company's position.

The point is not so much that it is now strange to see the two writing a submission together as that matters of economics are, indeed, things on which even great minds can differ.

Novae Meridianae Demetae Dexter delenda est

Wednesday, July 27, 2011

Management speak

I always like the fact that Don Watson used a number of examples from telcos in his classic critique of management speak Death Sentence.

Today's Crikey prints a staff e-mail from Optus CEO Paul O'Sullivan (aka POS). It reads

From: Paul O'Sullivan -- Chief Executive
Sent: Tuesday, July 26, 2011 3:04 PM
To: Optus People Everywhere
Subject: Repositioning Optus for the future

Hi team

Today we are taking another step in our transformation journey. In a highly competitive industry it’s important we are efficient and streamlined. Over the past few months we have reviewed our structure, our capability, our systems and processes, and our cost base. As a result of our review we have made some hard decisions -- to consolidate roles, reduce headcount and reduce operating expenditure. Today we are announcing the removal of 250 roles from across all areas of the business. This will result in around 180 people leaving the company.

We have spoken today with each of the affected individuals to discuss their situation and any alternative employment opportunities. Redundancies will not be voluntary -- they will result from areas where we can flatten our management structure, reduce duplication or streamline the business. To ensure the best personal outcome for those people impacted we have engaged an external provider for counselling and career services.

We have a comprehensive strategy to take us into the future, and we have already delivered a number of major initiatives to prepare us, including the establishment of ODM and release of the first product set including TV Now and Smart Safe. These changes are part of our ongoing transformation to continue our focus on customer experience and support our evolution as a digital services provider. We will communicate more over the coming months on our strategy to enable us to compete in a rapidly changing market and manage growth for the digital future.

Please take time to talk to your manager or HR representative if you have any concerns or questions.

POS


This has all the classic hall-marks - most notably an attempt to sound concerned for people while never really mentioning their contribution. The Watson examples were all about writing to "valued customers" about taking something away.

What I find fascinating is how every telco seems to have as its core ethos "transformation" - this is the ter that David Thodey uses and Paul Broad used to at AAPT. But a transformation is a one-off event that has a starting condition and an ending condition. What telcos use it to mean is a never-ending process that is partially reactive to external change and partly driven by the inability to ever consider all the dimensions of the business and respond to the current "crisis".

Telcos lurch on a rhythmic cycle between focusing on market share or revenue growth, margin growth and cost containment. They never seem to be able to have strategies that address the optimisation of more than one key metric at a time.

The good people at Optus though can rest easy. Their CEO has told them "We will communicate more over the coming months on our strategy to enable us to compete in a rapidly changing market and manage growth for the digital future."

Meanwhile I'm informed by people who have had recent Optus experience that their metrics are just as bad as the Government's Digital Economy ones...what I've critiqued as ordinal rather than cardinal goals. Optus still thinks it wants to "beat Telstra" on things like customer service rather than define what it thinks customers want and then delivering it.





Novae Meridianae Demetae Dexter delenda est

Monday, June 20, 2011

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

Thursday, May 19, 2011

Empathy for Optus

Optus yesterday was fined $178,200 over adds for a "Max Cap" plan in July and August last year. Reporting on the story in the SMH Lucy Battersby says that Optus doesn't agree with the claim that the ads were misleading but moved to replace them immediately.

In an opinion piece also in the SMH Elizabeth Knight writes;

The reality is that the ACCC spends a ridiculous amount of time dealing with exaggerated or plain fictional marketing claims made by telcos. It is hard to find someone who hasn't got some beef about their telco service provider or mobile phone bill.

Given that she then recites some of the language that David Howarth so delightfully ridiculed as I noted in a column for itNews it may surprise you that I feel some empathy for Optus.

The reason is simply that there is so much inconsistency in the operation of the law of misleading and deceptive conduct. Optus in this case was pursued by the ACCC and took the decision to change their practice to avoid a lengthy argument. The fine they have been asked to pay is less than the annual salary of their corporate counsels.

Meanwhile last December Optus initiated its own action against Vodafone over the latter's "infinite" plans. They were unsuccessful in gaining an injunction and have since dropped the matter. But it was the judgement in the injunction that was extraordinary.

Elizabeth Knight notes that "It's true that the more sophisticated consumer understands that there are plenty of calls that are not covered by a cap, but in some cases the fine print exclusions are a fraction the size of the headline marketing claims."

But Justice Nicholas stated in his judgement (at para 19);

It also needs to be remembered that ordinary and reasonable consumers, who might be expected to take some care of their own interests, are likely to do more than simply rely upon these particular television commercials in deciding whether or not to sign up to the respondent’s plan. These types of plans typically involve a contractual commitment of a year or more in duration and are invariably the subject of terms and conditions which relate to matters of detail of the kind that the applicant’s complaints focus upon.

According to this decision it doesn't really matter how much the actual terms vary from the advertised terms because the customer is LOCKED IN TO those terms the customer has an increased obligation to read and understand the full terms before acquiring the service.

Optus not only lost but has been required to pay Vodafone's costs. It would be interesting to know which amount is higher, the fine they just received or the cost of their failed litigation.

Personally I think Optus over-stated the case; they listed all the call types not included in the Voda plans. A focus only on 1800 and 13/1300 (in line with ACCAN's Fair Calls for All campaign may have been easier to argue.

So in defence of telcos and others, it is very hard to win the internal battle on compliance when the external rules are vague and inconsistently interpreted.

Novae Meridianae Demetae Dexter delenda est

Monday, March 07, 2011

It just doesn't follow

My Friday collection of brief links included one about comments made about the NBN. This elicited a comment from Ian noting he wasn't sure if my reference was sarcasm but that the AFP argument was ludicrous.

For the record, it was, and I agree with the assessment.

But these sort of things abound. Let's also look at the review of the TIO I also mentioned on Friday.

In announcing the review Minister Conroy said;

The recently released TIO statistics show that complaints to the Ombudsman remain at very high levels and this is not acceptable. While I acknowledge the hard work the TIO does to deliver consumers with quick and effective solutions, I want to ensure it has the appropriate tools to deal with complaints.

This got written up by one online journal as;

In a statement, Conroy said he had called for the review, because the number of complaints received by the TIO was unacceptably high.

This doesn't follow. It is at the very least not an accurate description of the Minister's release. If it is a restatement following a discussion, it still doesn't follow.

Why would a high level of utilisation of a service ever imply something wrong with the service? Surely the correct focus is on the providers, as the ACMA is doing with its Reconnecting the Customer project.

Meanwhile Lucy Battersby has done a really good job of looking at the cause and implications of Telstra's move to "per minute" billing.

The item points out that Telstra justified moving fixed line from per second to thirty second blocks two yrars ago to harmonize with mobile billing. But now they are taking both to per minute claiming it puts them in line with "industry standards".

Optus "followed suit" on the per second to thirty second move - claiming the move was to make price comparisons easier.

Telstra goes on to say that of course most customers won't be affected because they are on some kind of bucket plan and don't use the whole bucket.

Unfortunately Chris Zinn from CHOICE decides to hone in on the flagfall charges rather than asking the really obvious question. Since all of the price moves have been justified as simplifying things for customers, including price comparison, why not simply agree an industry standard measure and have everyone stick to it? It really isn't much different to agreeing to measure weight in kilograms and distance in kilometres. Standardisation of units of measure is an important institution that makes markets work!

I know the answer will be about competition and innovation. But it doesn't follow. As the providers own rhetoric shows consumers can't price compare plans using different charging bases.


Novae Meridianae Demetae Dexter delenda est