Thursday, April 22, 2010

The underside of Web 2.0

No this isn't about facebook and privacy, but it is about a far simpler kind of "user generated content". I've written before about crowd effects of online recommendation or condemnation, but the generally accepted position is that the "risks" of these is that the contagion (the story) can spread faster than the antidote (often truth). We are also familiar with the idea of political groups - or people with a cause - swarming to start a crowd (if that makes sense).

In the corporate world we are particularly concerned about the prospects of well-meaning employees using aliases on forums to trash competitors or make unjustified positive assertions.

The latest though is the story that asserts that an academic's wife was writing reviews on Amazon to deneigrate her husband's "competitors". More bizarre is that the person alleged of the actions is trying to use defamation law to shut down the claims.

UGC is a great development, but we have to re-educate ourselves about the reliance that should be plced on it. Then again, we've long said that you shouldn't believe what you read in the papers, but we do.

It is one of the features I notice most in senior corporate xecutives - their angst that almost every story written about them or their firm gets the story wrong, but a fascinating ability to believe every story written about competitors or government policy.

Tuesday, April 20, 2010

The Economic Consequence of ...

The economic understanding of supply shocks really only developed in the 1980s as finally economists came to full grips with the implications of the oil shock and the consequent syndrome of stagflation. Put simply, standard theory on how to respond to either inflation or unemployment revolved around fiscal or monetary policy to expand or contract the market.

However, if prices are increasing and unemployment is rising due to a "shift" in aggregate supply due to something dramatic happening to a factor of production then these responses are inadequate. What needs to happen is rapid radjustment of the economy.

That ultimately was the explanation for the success of the neo-liberal crusade - a whole lot of deregulation was necessary to enable economies to adjust to the new price of oil. In hindsight, negative supply shocks aren't all that uncommon, war being a major one on post war labour.

The current air transport shutdown over Europe provides an interesting example. Apart from the fact we can't blame anyone for it, it is important to note that there are three economic impacts.

The first two relate to the movement of people, one for business the other for pleasure. Business movement can be substituted with teleconferencing. Travel for pleasure - vacations - creates a significant damage to many countries tourism industries.

The more significant is the movement of goods. Few people realise the extent of air shipment of foodstuffs -from the exotic and expensive to more mundane matters like oranges and bananas. The source of much of the produce to Europe is less developed countries in Africa, Asia and South America. The interruption to trade ca have significant impact on their economies.

And all of this due to an event that the article linked to above reminds us we can't blame on anyone, not Tony Blair, not George Bush or even the nanny state!

Monday, April 19, 2010

Has the Earth moved for you?

No, I'm not doing a survey that assesses how many people share Lily Allen's sentiment in "Not Fair".

It just seems that there is a lot more seismic activity these days. In just the last week we've had an earthquake in China and the ongoing volcanic activity at Eyjafjallajokull. (For those struggling to pronounce that take a hint and shorten it to "the Eyja-fjalla glacier" - and the first bit is easier if you realise it is island falls.)



This follows on from Haiti and a slew of other earthquakes.

Now, it is entirely possible that there isn't a real increase in seismic activity, just an increase in the reporting of it. The reporting can increase both because of the extent now of seismic probes - every tremor is well documented - and the prevelance of communications and media technologies which makes reporting the event and dramatic pictures more readily achievable. The US geological survey supports the view that there is no increase in numbers just an increase in the ability to locate them. (at time of writing their page was last modified Page Last Modified: October 27, 2009 14:01:59 UTC aand said;

Although it may seem that we are having more earthquakes, earthquakes of magnitude 7.0 or greater have remained fairly constant.

A partial explanation may lie in the fact that in the last twenty years, we have definitely had an increase in the number of earthquakes we have been able to locate each year. This is because of the tremendous increase in the number of seismograph stations in the world and the many improvements in global communications. In 1931, there were about 350 stations operating in the world; today, there are more than 8,000 stations and the data now comes in rapidly from these stations by electronic mail, internet and satellite. This increase in the number of stations and the more timely receipt of data has allowed us and other seismological centers to locate earthquakes more rapidly and to locate many small earthquakes which were undetected in earlier years. The NEIC now locates about 20,000 earthquakes each year or approximately 50 per day. Also, because of the improvements in communications and the increased interest in the environment and natural disasters, the public now learns about more earthquakes.

According to long-term records (since about 1900), we expect about 17 major earthquakes (7.0 - 7.9) and one great earthquake (8.0 or above) in any given year.


They even record a list of them.

Another expert claims an increase in seismic activity could occur through global warming as even few degrees increase in rock temperature softens the joints between geological plates. When the sea level rises, pressure of the water may also release energy between plates in tension. We are coming out of an ice age so this will happen anyway, global warming is just accelerating the process.

This asame person notes there is an "apparent" increase in the number of recorded earthquakes but that is due to the increase in the amount of research stations. Further, earthquakes and tsunamis will seem to get worse as the world population explodes, more people getting effected by seismic activity than before, and media or television coverage becomes more dramatic.

So it seems like the conspiracy theory about the large hadron collider is wrong.

Thursday, April 15, 2010

Self-Referential Paradoxes

There is a roup of paradoxes which share in common being self-referential. The best example is the "set of sets which are not members of themselves". The paradox is that if this set isn't a member of itself then it is a member of itself, or if it is a member of itself then it is. Via lots of jiggery pokery you can get from this observation to Godel's theorem.

A while ago I fantacised about writing a self-help book called "How to stop buying self-help books". You can see all the delightful possibilities.

Today I listened to a podcast about something similar - a book called "How to write a book in 33 days".

This is about a non-fiction business book that really is a marketing pitch.

Given I've got two non-fiction books brewing in me - one on competition in telecommunications and ne that could be called "postcapitalism".

The podcast is actually quite useful as a standard guide to "report writing". Botto end is 35,000 words and really as a marketing technique 60,000 words. The author is a professional ghost writer of executive books - and her how to guide looks more like an attempt to frighten off authors.

Ethics Again

I already commented on the NSW Government proposals for a secular ethics class to be provided in schools as an alternative in the period devoted to religious education.

This week the SMH has reported on concerns by bishops that the program is a threat to teach ethics instead of religion rather than an alternative to it. That is, that this is the thin end of a wedge designed to see the secular ethics class replace religious education.

The correct response to that is "so what." If parents want to provide education in religion they have two options, choose a school run by a religion which we still absurdly subsidise (see especially the case the the Exclusive Brethren schools), or send their children to a "sunday school" or equivalent in their faith. I was always happier with what my kids learnt in Sunday School than anything that hapened in school scripture class. My own secondary school religious instruction (at a non-denominational private school) I found useful because we did study the Bible as a text rather than as a religion e.g. we had no prayers that I can recall). This was highly useful for other studies like history (helping to understand religious wars) and english. We also had a year where we did comparative religion - we each had to research and present the case for a religion - I did atheism!

Anyhow the complaint about the ethics classes is the topic today. Jim Wallace made the point raised by the Bishop's in the National Times last week.

However, with the pilot trial due to start next term in 10 public primary schools, it has emerged they are being pitched with the obvious aim to draw students away from Scripture classes, despite the Government's assurances they would not.

Wallace, however, repeats the delusion I referred to the other day that somehow or other our ethical system is inherently Christian. There is certainly plenty of causal effects that can be shown of how Judeo-Christian beliefs and values have informed our political system and ethical values. But there is no "correspondence."

His most outrageous claims revolve around what is sometimes called the Golden Rule.

He wrote;

The idea of loving one's neighbour as oneself – or do unto others as you would have them do unto you – is religious. More accurately, it is Christian.

In an earlier work I incorrectly labelled this as the principle of mutuality. It is better known as the principle of recipriocity. To just help all those Christians out there understand that the principle ethics of their religion exist not because God commanded them but because they work, here is a list of the principle of reciprocity as stated in eight leading religions. There is a poster that has the rule in 31 religions.

Christianity All things whatsoever ye would that men should do to you, do ye so to them; for this is the law and the prophets. Matthew 7:1

Confucianism Do not do to others what you would not like yourself. Then there will be no resentment against you, either in the family or in the state. Analects 12:2

Buddhism Hurt not others in ways that you yourself would find hurtful. Udana-Varga 5,1

Hinduism This is the sum of duty; do naught onto others what you would not have them do unto you. Mahabharata 5,1517

Islam No one of you is a believer until he desires for his brother that which he desires for himself. Sunnah

Judaism What is hateful to you, do not do to your fellowman. This is the entire Law; all the rest is commentary. Talmud, Shabbat 3id

Taoism Regard your neighbor’s gain as your gain, and your neighbor’s loss as your own loss. Tai Shang Kan Yin P’ien

Zoroastrianism That nature alone is good which refrains from doing another whatsoever is not good for itself. Dadisten-I-dinik, 94,5

It is an interesting feature that all the versions state the exhortation as an absolute, devoid of any reference to the deity.

Monday, April 12, 2010

Sciences, Politics and Religion

A bit of a grab-bag today triggered by a range of different thoughts. A few weeks ago I argued for the need for scientists to be humble. One respondant neatly responded that my analysis was wrng, scientific theories are improved upon not found to be wrong. I was, of course, asking for this by chosing to say Newtonian mechanics is wrong.

Like many theories the subsequent theories of mechanics can be found to reduce to the Newtonian model under certain constraints, and hence Newtonian mechanics can still be usefully employed when the assumptions (low speeds, human scale distances) apply.

In Saturday's SMF Lisa Pryor wrote about a 1948 book on parenting that she had received from her garndmother. Its prescriptions on caring for a baby - including the infamous thirty minute kick in the sun - are often misguided, if not hilarious.

But that volume was prepared on the advice of "scientists". In the hilosophy biz there is a distinction drawn between positive and normative theories, the first describe what is and the latter what one ought to do. We regularly use positive theories with another linking statement to decide what we ought to do.

That brings me to the second piece, from a week ago, by Chris Berg of the IPA, also writing in the SMH. Berg's topic is climate change and his basic position is that we should do nothing about climate change, as no Australian action can stem the problem and that the costs are probably greater than the benefits.

Berg seems to have no concern that his response seems to ignore the bulk of the theories of economic science, that the bast way to deal with an externality (pollution) is to price it so that decisions are internalised or that the best way to decide where on the globe the polluting should occur (i.e. decide where production is most efficient) is to trade it.

But the biggest problem is that Berg is allowed to misrepresent the nature of the risk, because the cientific debate has become too much focussed on the immediate question of whether the planet is warming rather than the proposition that the theory of anthropogenic climate change is sufficiently plausibl, and the consequences so dire, that the best option is to act now. The error cost of acting when we didn't need to is much muvch lower than the error cost of not acting if we did need to.

For Berg to conclude;

Growth will fortify us against a climate that always changes. For if you can't cure the disease, manage the symptoms.

Is to demonstrate a complete lack of understanding of the principles involved. Amongst other things, we can cure the disease. This would be like someone deciding that we can never cure the disease of selfishness that would make markets, contracts and democracy fail. Managing the symptoms in that case would involve imposing a dictatorship.

Which brings me to the last point, a report of an event to launch the Foundations of Western Civilisation Program. The participants were a predictable bunch from the IPA and a Qudrant contributors list. The report sugests that the event itself was a tad confused about its intent.

It seems to be a collection of people who would most normally line up with a copy of Milton Friedman's Capitalism and Freedom in one hand and Hayek's The Road to Surfdom in the other trying to advance the case that a combination of postmodernism and "cultural relativism" had eroded the celebration of the achievements of Western civilisation and the Judeo-Christian tradition.

It seems a terrible shame to see Cardinal Pell aligned with the leading thinkers of the Libertarian right, after all the Catholic Church was the main opponent of the hard fought battles for democracy and freedom. While the Thirty Years War was on one level between Ctholics and Protestants, on another it was between absolute (church supported/divine right to rule) monarchy and nation focussed constitutional (secular state/freedom of religion) monarchy.

To claim there is any such thing as a valid Judeo-Christian tradition that is universally good. It is posible to argue that thre is a very good ethcal and political tradition in the West, that happens to have arisen from that religious tradition. However, much of what can be justly criticised within the West from the platform of that ethical and political tradition also was done in the name of that church - religious crusades, torture as a means of interrogation (a person could not be presumed to be telling the truth UNLESS they were tortured), slavery (never spoken against in the Bible), endless wars.

Just as scientists need to be more humble, those who wish to profess the wonders of the West need to do more than claim the wonders of a specific heritage. They need to do more than criticise those who they acuse of relativism. They need to enunciate the values that they truly stand for. Such clarity cannot be found merely in a reminisence for a school curriculum built around British jingoism and Australia moral superiority.

Finally, I heard a really great line in a sermon on Sunday.

Courage is not overcoming your fears, it is about continuing to fight despite your fears. The same is true of faith. Faith is not about overcoming your doubts, it is about continuing to believe despite your doubts.

That's the kind of faith I mean in my toika of faith, hope and love. I'm not a great Bible reader but I think Hebrews 11:1 should be read more widely "Now faith is being sure of what we hope for and certain of what we do not see."

Those people like Roy Williams (author of God Actually) trying to use design theory as "proof" of the existence in God miss the point. If you need proof you don't have faith.

Thursday, April 08, 2010

On Death

My mother, who was a dermatologist, used to regularly point out to me the illogicality of the argument "what price do you put on a human life" that is often used to attempt to justify any amount of medical intervention.

An economist would reply that the cost you would put on it would be the value to you of anything you'd have to give up to save the life - the opportunity cost. The problem is, of course, that health decisions are always of some collectivist nature - be it a Government decision of what to fund, or a private but corporate decision about what staffing levels to maintain.

The lates "health scandal" in NSW is the story of a patient who was not able to immediately be given a feeding tube iserted straight into his stomach when the tube down his throat had to be removed. The article was given the headline "starving to death".

Now this is at one level a tale that fits into the above description. The patient's daughter took the naive view of resourcing, that all resources need to be available all the time. She is reported to have said;

The system has become so appalling that people are dying simply because there is no one around to do what is needed.

But more worrying is the attitude to death revealed in the article. The paient is an 84 year old who we are told has "broken his neck". In the absence for a few days of a feeding tube the patients daughter is reported to have said;

He was just disappearing before our eyes and he was so terrified. He kept saying to me 'I don't want to die, I don't want to die'.

The first part of this is that a patient of that age, immobile in bed, getting intravenous glucose is not really likely to be "wasting away". But the truly worrying part is an 84 year old saying "I don't want to die."

We all will die.

In this particular patient's case there might be some factor I don't know about - like a soon expected first great grand child. But the fact we all have to deal with is that we will die.

There are three ways that people deal with this fact. The first is the religious way, that with death there is "hope" - of whatever the afterlife story is in that religion. The second is what I'll call the "rational atheist", in which the individual firmly believes that there is nothing after death but is fully accepting of death as a fact and that your "spirit" is the memory of what those who still live have of you (or other enduring impact).

The third, far more prevelant one, is the unthinking agnostic/atheist or uncommitted religious. This growing group has the same "fear" of death as ancient man before gods were created as a means of "explaining" life and death. They have often been shamed into their position by the likes of Peter Fitzsimons and other aggressive atheists who try to beliittle a god as an "imaginary friend" or have been successfully driven away from religion by the practitioners who deviate from my simple principles that religion needs to limit itself to "faith, hope and love".

The specific case may or may not reveal a failure in the approach to health care. But the story seems to reveal a far greater problem of a society that has become unable to accept that death is a reality that confronts us all.

Tuesday, April 06, 2010

Jesus and Refugees

Lots has been written about Tony Abbott's performance on Q&A last night. These included reports on his observation that "Jesus didn't say yes to everyone", and a claim that he "left his tough, macho, bully boy persona at home last night and almost managed to woo a room full of small-l liberals" (that commenator obviously didn't note that half the audience were rusted on young liberals who applauded Abbott regularly).

Abbott fairly noted that he doesn't see the PM or NSW Premier being asked to relate their Christian beliefs to matters of public policy. The reason might be because no-one anticipates it would be so much fun as seeing Tony struggle to reconcile the two.

Refugees offer a classic case. Abbott tried to argue the proposition that once a person has left their original country they are no longer in fear of persecution and have no reason to travel further. Apart from the fact that this means Australia should, by definition, never have to deal with refugees, it also misses the point about what "fleeing" really entails.

There are two things about a person fleeing that I think can be reasonably expected. Firstly they want to get a long way away. Secondly they are highly unlikely to have undertaken any calculus about what the relevant laws are like and the real advantages or otherwise of their specific destinations. That's why "deterence" is really a bad policy.

As for Jesus it is worth remembering (as excellently portrayed in the first episode of the History of Christianity showing on the ABC) that Jesus was a Jew. We also know - from both the Biblical and other records - that the Jews were a refugee race. They were not native to the region of Israel (nor were the Palastinians).

Where Abbott got himself more tongue-tied was on immigration and population policy in general. He tries to invoke the refugee intake as a big number in population planning. In reality it is not, and what's more the coalition Government of which he was a member was responsible for the biggest immigrant numbers we've ever seen. It was even the Government that experienced the biggest number of arrivals by boat.

Aside from these figures it is worth noting that the greatest number of "unauthorised" persons in the country are those over-staying their visas who entered by plane.

While Abbott stews in this mess, he has been caught out again with his pathetic interpretation of what "holding the government to account" means. He needs to recognise the need to stand for something other than raising the tax rates on big business.

While all parties now talk about holding policies back to the election, the big winners are those that are announced well before. The role of the NBN announcement in early 2007 in controlling the debate and creating the idea that the ALP stood for the future should never be under-estimated. It is fine for the likes of Malcolm Colless to continue to write nearly incomprehensible tirades against the policy, including again supposed carpeting of the Minister and winges by his Cabinet colleagues. But that policy was a significant factor in the win. As they go to the 2007 poll their excuse for non delivery will be opposition obstructionism.

Meanwhile the coalition is left with one place less to look with Malcolm urnbull's announcement that he is not contesting the next election.

Wednesday, March 31, 2010

Hu and Telstra

How can I link the Stern Hu story and Telstra? Well it is made a lot easier by the fact Julie Bishop has put her thoughts in writing.

Understandably she devotes most of her column to berating the PM for claiming to have a "special relationship" with China and then not being able to use it in this case. This sort of ignores the fact that Rudd demonstrated that despite the claims of special relationship he does more to put the interests of Australia first, and does more to address human rights than his predecessors.

The coalition's approach to bribery seemed to be that whatever happened at AWB had nothing to do with them!

You can't use a "special relationship" to argue that your citizen's should not be subject to another country's laws. The Howard Government was a master of wanting the death sentence applied by our neighbours for terrorism acts, but not for drug smuggling.

You can argue that there is a consular agreement that has been breached. That is an element of detail I don't know enough about. I do have the sense that the Australian Government figured out early that the fundamentals of the case were established.

How does this relate to Telstra? Well, we keep hearing all about a ting called "sovereign risk", and that the whole investment climate would shift in Australia if the Government continues to pursue its stated objectives of creating competition and confiscating Telstra's monopoly rents (either by price regulation or by having them competed away). Those cassandras need to get a grip and contrast the issue to REAL sovereign risk as you see in the case of China. That is truly a country as Julie Bishop says where "Companies from Australia and around the world ... would be well advised to exercise a high degree of caution in their business dealings in future."

It will be a long, long time till someone writes that about Australia. In fact, not continuing the policy for greater competition would be the real risk, as regularly evidenced by the interest paid to the area by the US trade representative and Australia's obligations under GATT and the AUS-FTA.

A novel idea for Tasmania

The Tasmanian election has unsurprisingly delivered no clear winner. The speculation now is on which of the two major parties will be called on by the Governor to govern.

Let's assume it finishes 10, 10, 5 to ALP, Liberal and Greens. Both the ALP and Liberals have indicated that any deal with the Greens will not be a power sharing deal. The Governor needs to decide which MP is most likely to be able to form a Government.

The leading candidate is the Liberal leader on the assumption (1) he resolute was a repudiation of the ALP and (2) the ALP knows that whoever tries to govern with the Greens will wind up in a mess.

There is an alternative. The ALP could propose a coalition with the Greens in which the Grens leader is Premier and allocates portfolios between a 1 to 2 ratio of Ministers from both parties. The ALP in the long term have nothing to fear from a party to their left - as in the Greens. In fact that should use them to occupy more of the centre. Eventually the soft left will get disiusioned with the hard left of the Greens and return to the ALP.

So Premier Bartlett, you should give the Governor advice to offer Nick McKim the opportunity to form a Govrnment and tell McKim you will support him in coalition.

Tuesday, March 30, 2010

Coalition policy and other NBN fantasies

The coalition spokesman has decided to come clean and announce their policy position o the NBN. As reported in the Oz today;
Opposition communications spokesman Tony Smith said a Coalition government would adopt a non-interventionist approach to competitive broadband markets such as capital cities.

A true pity he didn't speak to any of his colleagues on this. The last Government actually found you couldn't leave the capital city broadband market to the market. In case he hasn't spoken to members from electorates where the exchanges were built in the 70s and 80s there are large areas that get no or poor ADSL coverage. Even the famous iiNet/Internode map of Sysdney stops at Parramatta.

That's why Telstra proposed an FTTN network, but demanded regulatory concessions. The G9/FANOC proposal also required regyulatory changes to be viable. As a consequence, inaction by Government is not an option. The last coalition Communications Minister (Senator Coonan) set about resolving this through what amounted to a "tender" for regulatory settings. The problem is and was that the private sector view of investment horizons draws you to an FTTN solution which involves significant investment that will need to be crapped when there is an eventual move to FTTH.

Meanwhile there is an interesting story on the ABC that suggests the NBN will "kill 25% of ASX listed companies". When you probe the story more it comes down to the fact the NBN has the potential to change the delivery model for service industries, about 25% of the ASX is made up of these service firms. The example in the article is executive coaching.

Let's hope that the article is right! The purpose of the NBN, inter alia, is to generate economic productivity. That means changes to business models. Firms that don't adapt will suffer. That is the point.

Anyone looking for a hint should check out the Cluetrain manifesto, which is now over a decade old. It is a manual on how the internet changes things.

I've developed my own summarised version of the manifesto, that might become a bigger work;

A spectre is haunting corporations, that is the spectre of consumerism. This is not the consumerism of Nader or lobbyiss, this is the consumerism of the empowered marketplace that changes the rules.

1. Markets are human conversations
Markets are conversations, they consist of humans who sound human. The tone of your voice is as communicative as the words that you speak.
2. The internet has made the network the dominant form of organization
The internet is enabling conversations that make the network the dominant form of organization, replacing both markets and hierarchies. The people in these networks are changed fundamentally – they are getting smarter, more informed and more organized than they were in markets or hierarchies.
3. People rely on their network not authority
People have figured out they get better information and support fro their network than from vendors. There are no secrets, the consumers rapidly know more about the product than the vendors.
4. Principles need to replace positions, and be at the centre of the conversation
Corporations’ homogenized voice that has been used to “motivate” the staff and “enthuse” the market sounds flat, hollow and unconvincing. Companies need to “lighten up”, not with affected humor but by adopting big values, a little humility, straight talk, and a genuine point of view. They need to replace “positioning” with adopting principles.
5. Loyalty is built on honest two-way communication
Brand loyalty is like a marriage and we forget that “divorce is always surpriseful” at our peril. Our partner can leave us before we know what we’ve done. Companies need to pay attention to all the clues their customers and staff provide. Companies can’t afford not to be honest with those they profess to care about.
6. Corporations need to belong to a community
Human communities are based on discourse – the conversation defines the community. Companies need to decide what community they want to be in and engage in the conversation.
7. The market and the company are not separate – they are one
There is not an external market and an internal hierarchy, there is one network of people playing multiple roles.
8. Marketing is not a mediator between the customer and the company
Customers and workers want to talk to the company that we’ve kept hidden behind a smokescreen of flacks and hucksters. Both want the same kind of open conversation with a partner they can trust. The customers want to be involved in all the conversations of the company, not just those mediated by “marketing” or market research.
9. The customer-centric organization is dead
The customer can’t be put at the centre of the organization, they need and want to be at every part of the organization.
10. The revolution is happening.
Responding to it is not a matter of strategic choice, it is a necessity.

Corporations of the world, act. You have nothing to lose but everything to gain.

The Hu wash-up

The case of Stern Hu makes for interesting reading, if only because parts of it verge on a modern day version of a Cold War novel.

Theories abound from, ranging from the claim that Hu and his colleagues were singled out because of the Chinalco snub, through to a suggestion in Crikey today that at heart the issue is over a power struggle between the current President and both his predecessor and planned successor.

Meanwhile the coalition has realised that there earlier attacks were a bit over the top, and that suggesting that PM Rudd should sort of demand Hu's release have been over-taken by facts. Julie Bishop has been more targeted on the question of whether China has stuck to the principles of the consular agreement between the countries.

Meanwhile I think Richard Farmer, also in Crikey, has nailed it. The best Australian response now is to seek the agreement of the Chinese for Stern Hu to be interviewed by the AFP to ascertain if there are charges against Rio Tinto to be brought under the Criminal Code Amendment (Bribery of Foreign Public Officials) Act 1999.

Wednesday, March 24, 2010

Fantasy land

When I was growing up, fantasy land was just one of the places we could be taken to by Disney on a Sunday evening. I gather it is the name of a section of the theme park as well.

In Australia in 2010, fantasy land has become the province of journalists writing about telecommunications. The latest has been an effort by Malcolm Colless that reports that the PM has "roasted" Stephen Conroy over the NBN implementation study report.

Malcolm is a senior and respected industry figure who after a career as a journalist pursued a long career in management at News Corporation. Prior to returning to his craft as a columnist he was basically News’ chief lobbyist. I should declare an interest that I (at Telstra) worked closely with Malcolm in the lead up to Telstra and News doing the Foxtel deal.

It seems mighty strange that it is Malcolm Colless rather than a member of the press gallery who has received this tip about the PM and the Minister. It is probably about as reliable as the information we were told Senator Fielding had that Telstra was close to a deal. Or before that that the wholesale only carve out in the exposure draft NBN Co legislation was all about putting pressure on Telstra.

The pity of all this is that the Telstra management and Board do have an incredibly difficult task. As Jennifer Hewett reported in the Oz, Telstra really does need a deal here, but the Board has managed to get itself totally spooked about what their legal risks are.

The Board should though be asking management whether they are making their job easier or harder. While the CEO and Chair changed the members of the senior management team most directly involved in working out policy and strategy have not, and they mostly seem to be people who were relatively comfortable with the high risk game that Thodey's predecessor pursued. I know if I were a Board member I'd be encouraging the management to not be engaging in a strategy of brinkmanship. Every one of these stories merely increases the risk to them.

The only member of the team on engagement who is different is Conroy's former staffer, Tim Watts. His Facebook page says he has an up-coming Op Ed piece in the Australian - but it is more likely to be about one of his other myriad interest, including racism which I believe I blogged about before.

A similar critique is possible of the other side of the equation. There don't appear to be many points at which Conroy's Department has covered itself with glory. The ANAO report on NBN mark 1 reflected that there was advice the Department should have given the Minister sooner, I personally have criticised the fact the process was set up to create "competitive tension".

The malaise in our public service is widespread according to Robert Gottliebsen. Actually, from my own brief experience that malaise has spread from the Parliament down. The malaise has its source in the use of both Question Time and Estimates as political grandstanding rather than genuine holding to account.

The supposedly apolitical public service spends anywhere between 5 and 20 percent of its time being prepared for questions that are supposedly about "accountability" but are really about "politics". This creates the potential consequence that risk management becomes risk avoidance.

Unfortunately the media does not help, being almost totally devoid as it is of any capacity to provide policy analysis. Instead they report their views on who is "winning" a contest, be that between the parties or, in this case, between Telstra and the public interest.

Tuesday, March 23, 2010

Unashamed promotion

This blog is reserved for me and my personal, often idiosyncratic, views and is not a place where I pursue my daily trade.

However, yesterday was exciting with the commercial launch of Australia's first 4G wireless broadband network. Because it is in Perth those in the East will not be seeing the ad campaign, but through the wonders of technology (and YouTube) I can show the TVC here. (Please note I just cut and paste the YouTube instructions on how to embed this - I don't know why it is cut off - doesn't normally happen. Right click on it gives you an option to watch on YouuTube or go here.)

Reform and the USofA

Well, Barack Obama has won approval for his health plan, but only after satisfying some wavering Democrats that public money wouldn't be used to fund abortions.

Those of us in advanced civilised nations should applaud this reform in the US, and welcome them to the family of compassionate nations. Many script-writers of US medical shows will need to find new plot lines to replace the story line of the critical need patient unable to afford care.

That the reforms hinged upon the question of public funds for abortion is perhaps no sur[prise. NSW's last Australian Democrat politician, Arthur Chesterfield-Evans, attempted to make the public aware that there is no ability to get a publicly funded abortion in NSW even though the citizenry would presume this is the case. It is achieved through the manipulation by the State Government rather than by regulation.

It is a situation that needs to be rectified.

Meanwhile, we will know that the US has made it into the 21st century if Obama can pull off two other big reforms. The first would be to move to the metric system of weights and measures. The second would be gun control.

On a lighter note

Evidently Fiona O'Loughlin has faced some criticism following comments she made on Spicks and Specks last week re Bindi Irwin.

All I can say is that I hope Bindi's mum can in the future expect the same level of support from her daughter to that Biddy O'Loughlin has given hers.

I do love the final lines;

Biddy O'Loughlin encouraged fans and critics to attend her mum's show.

"I need some new boots," she said.

Monday, March 22, 2010

Ahhh Telstra and the demonstration of theories of value

Some years ago I crafted the line that "Telstra is like a giant broken washing machine - the only cycle that works is spin."

I think they are missing some of the magic they had in those days, but it is still distressing that we don't seem to be able to distinguish between "telecommunications policy" and "Telstra policy". That is probably the most damning indictement that can be made of the post 1997 telecommunications policy outcomes. While Richard Alston and his Liberal successors wanted to take all the claim for the competition reforms, they also need to take the blame for privatising the telco before they worked out the industry structure.

Our most recent discussions in the public sphere have revolved around the question of what value should be placed on Telstra's co-operation on the NBN. My first quick response to this has always been "nothing". The value to Telstra should be fully captured through a set of cash flows into the future - one from NBN Co to Telstra for use of exchanges and ducts, the other from Telstra to NBN Co for ongoing services. But it seems that what is being discussed is a lump sum for an asset.

It also seems that negotiation isn't progressing, despite the fact that the SMH (Ari Sharpe) reported on 16 March;

After meeting Telstra government relations chief James Shaw, the Family First senator said he believed a deal between the company and the government over Telstra involvement in the national broadband network was imminent, undermining the need for the bill to split the company.

The next day day Malcolm Maiden in the SMH had a tip that;

Political infighting about the government's proposed new national broadband network is continuing. Yet behind it the fact remains Telstra and the NBN Company are still far apart on the question of how much Telstra should be paid to co-operate with the network's construction.

Quite a dramatic step over one day! This story floated the preposterous idea that the gap between the value the NBN Co would put on the Telstra asset and that Telstra would place on it should be filled by the Government.

Maiden has been pleased to write on Saturday about Telstra's ASX release which provided the suggestion that Telstra does, indeed, fancy the idea of a gap closing payment by Government.

As Maiden seems to be so well placed we should consider with concern his suggestion that the USO will provide a mechanism for this strange extra payment. Maiden writes;

Nobody really disagrees: estimates of the true cost of servicing the USO range from $550 million to $1.7 million, a calculation Telstra made in 2007 when Sol Trujillo was chief executive and Donald McGauchie chairman.

I think we need to remind him that lots of people do disagree - that there is a thing called the intangible benefits of the USO. These intangibles are best summed up by the extent to which Telstra likes to take all the credit for servicing rural Australia as if they really do it because they care. Either they care or they don't - it is meaningless to claim you care when on the other hand you claim you'd run away if the law was changed.

ATUG award winning journalist Stephen Batholomeusz has done a great job in noting that Telstra needs to strike a deal or simply be carved out of future consideration. The NBN can and will be built without them, and Minister Conroy can limit their ability to compete merely through legislative instruments.

So what lies at the heart of these "valuation" gaps?

At its simplest the gaps represent the gap between an assessment of the value of an asset in use versus its value in exchange. The "value in use" is the classical net present value of the expected future cash flows of an asset. The value in exchange is the amount someone else is prepared to pay you for it.

Most times the numbers overlap the other way, we voluntarily participate in market exchange because the buyer places a higher value on the goods than the seller. But it is not always the case. One of the specific issues in the case of value in use is the reliability of the forward estimate. In this particular case Telstra's valuation probably includes an explicit provision for the value to Telstra if the NBN is not built. In NBN Co's case it is merely the actual asving they make on future costs.

This raises a really interesting question of the whole regulatory regime. In theory access prices for Telstra's network have been based on the "efficient forward looking cost" to provide the services. There should in that case be no gap. What Telstra is admitting is that their existing business model is one in which they continue to obtain above cost returns from their infrastructure. The valuation gap is the net present value of the mark-up they have obtained from market power.

The concept of "value" in economics has a long history. The poster boy of the neo-liberals actually subscribed to a Labour Theory of Value (as did both David Ricardo and Karl Marx). In this theory the value of a good is the cumulative labour necesary to create it. Actually the standard economic model would concur, because in equilibrium the price of everything equals its marginal and average cost. If everyuthing is in wequilibrium that means the same is true of the capital goods, and hence ultimately the price of everything equals the cost of the labor to produce it.

Unfortunately, in the real world, nothing is in equilibrium and almost no market approaches anything like the ideal. Consequently we continue to have real debates about "value".

And if we think economists have it tough, accountants have it worse. Should the assets of a firm be valued on their cash flows or "marked to market." How, for example, do you value a spectrum licence? By how muc the operator plans to make from it or how much someone is prepared to pay for it?

To avoid artificially inflating accounts on a future cash flow basis, many accounting standards require mark to market. This was true of the assets held by the SPV's in the finance sector, who suddenly saw their asset values plummet as sentiment towards various derivatives plummeted.

There probably is no "right answer." As Feyerabend would note it is important to use the appropriate theory at the appropriate time.

Telstra needs to figure out that their last valient effort to be paid out for siurrendering their market power is never going to happen.

Note: The writer owns Telstra shares.

Tuesday, March 16, 2010

A grab bag of telco bits

Life in telco land is really interesting of late. We've got discussion ongoing about the future of the 700 MHz spectrum and the 2.5 GHz spectrum, ongoing prognostications about the NBN and some really direct attacks on the politicians.

Let's start with some nice clean technolog talk and 4G wireless. Two consultations are ongoing, the Digital Dividend consultation by DBCDE and the review f the 2.5 Ghz band and the future of ENG conducted by the ACMA. The likely outcome of both is the allocation of 2*50 (or 45) MHz and 2 * 70 MHz of spectrum for IMT/WAS applications.

At this point the conversation gets less clear. Sometimes the discussion is focussed on 4G and sometimes on LTE. At least one player, Optus, uses a slide that clearly claims LTe as 4G. (see the Optus presentation at the 2.5 Ghz spectrum tune-up). In the mix are those that want to argue that 4G can only apply to those services that meet the IMT-Advanced specification, which LTE doesn't reach. Meanwhile LTE Advanced does. This is exactly the same position as WiMAX where 802.16e (the first mobile WiMAX standard) doesn't reach the IMT Advanced speeds, but 802.16m, now promised by Intel for 2012 (see also), does.

Meanwhile we still have some commentators, like this from Malcolm Colless peddling the line that;

As one industry expert predicted last night: "Within 10 years at the latest the use of 4G wireless services will show that Rudd's decision to extend the broadband rollout from the node into the home was just plain stupid."

It is a great pity the un-named expert wasn't named. The view contrasts with the comments of Ryan Stokes, who is after all launching Australia's first 4G network, at a recent conference. He said, in part;

There has been a lot of conjecture about the NBN and about wireless. Commentary has ranged from claiming that we don’t need the speeds the NBN will deliver, that the needs can be all met by wireless, to wireless having no future given the ubiquity of the fixed line service.
As we look to the future it is impossible to see a point at which demand for speed and data will suddenly slow.
There is no doubt in our minds that the growth in demand for bandwidth will continue to accelerate. Mike Quigley used a slide at the Realising our Broadband Future forum that showed the exponential growth that has occurred in access speeds to date. That chart indicates a need for 100 Mbps at about the time the NBN is completed and a need for 1 Gbps within the decade after that. The NBN will be able to be upgraded to meet those needs.
With all the will in the world and the developments that will occur with LTE Advanced and the next cycle of WiMAX in 802.16m, wireless networks for the most part won’t be able to meet these demands. Outside of certain metro and regional fixed wireless applications the core infrastructure we need is fibre based.


The slide he referred to ike Quigley subsequently used at the same conference. It is slide 5, and he goes on to compare the wired and mobile IP trafic on slide 8.

Meanwhile our Parliament has become a place where, quite frankly, not much happens. The Senate reportedly is delaying consideration of the separation Bill because Telstra and the government are close to a deal. It seems an unusual way to communicate market sensitive information, to have a government affairs professional brief a Senator who then briefs the media. But heck, this is the same company where someone made up a story that a part of the NBN Co exposure draft legislation was all about Telstra (it wasn't) and briefed the media with the intention of driving th Telstra share price down. I'd have to assume it wasn't a member of the management team.

Meanwhile we discover that the NBN Select Committee has decided to inquire into an Exposure Draft of legislation. It is clear such enquiry will not, nor can it, reduce requirement of scrutiny of the legislation when it is introduced. This is not only a waste of Parliamentary time, but a monumental waste of industry time. No amount of "regulatory red tape" is as intrusive as the intereference being run by the coalition on behalf of Telstra.

Far worse, this stunt could discourage the Government from further cases of providing exposure drafts of legislation. The contrast to the last telecommunications legislation of the Howard Government is monumental, a Bill introduced on which industry had about two days to prepare for a one day Committee hearing! This Bill hinged on subsequent Ministerial instruments on which a similarly truncated consultation was applied.

Is it any wonder that leading commentators have noted that the opposition communications spokesman was treated with near derision by the industry at the recent ATUG conference. It is not possible to comment further as the shadow has not yet posted his speech on his website.

In one of my less proud moments I attacked Bruce Billson for a similar performance at ATUG two years ago. The portfolio has suffered for far too long with it being treated as a portfolio for political point scoring, rather than reasoned policy debate. Fans of The West Wing would recall the episode where Josh and Toby are discussing Social Security reform, Toby thinks he can solve it and Josh doesn't want him to because it is too useful a campaign issue.

Meanwhile important things happen in the real world. One of the world's first 700 MHz LTE networks has been built by the Navajo Nation. When we get around to NBN Co discussions and Digital Dividend it might be worthwhile asking whether the Digital Dividend spectrum should be auctioned in the ordinary way, or whether NBN Co should be charged with building a wholesale only LTE network in regional Australia as a monopoly infrastructure provider. That was part of the DBCDE discussion paper. It will be interesting to see what responses were received.

On a final note in debate on the competition and consumer bill Senator Boyce highlighted that labor went to the last election saying "Labor will ensure that Telstra’s wholesale and retail functions are clearly distinct within the company." In case Senator Boyce hasn't noticed that is what the Bill before the Parliament does. It actually provides for full functional separation, but gives Telstra the opportunity to avoid that by chosing to structurally separate, and the latter they can do prospectively as the NBN is built. Is this the first time a Government has been criticised for introducing a Bill that fulfills an election commitment?

That said, the Bill would always have been better presented by putting the functional separation requirement first and then the structural separation alternative second.

Monday, March 15, 2010

Joe Hockey and Kate Lundy - a new Democrats

I've kept out of the internet filter debate in my own name a bit, but I am pleased to see how well it has progressed. Now that Stephen Conroy is clear that the only webpages he wants to block are those that would be "Refused Classification."

This has brought out critics from both sides. Kate Lundy on her blog has suggested a non-mandatory (or opt-in) filter.

More recently Joe Hockey in a speech on liberyy said;

Similarly, we see the current Federal government seeking to introduce laws that will effectively censor the Internet. Of course we all want to stop unlawful material being viewed on the Internet. There are appropriate protections that are in place for that. But I have personal responsibility as a parent. If I want to stop my children from viewing other material that I feel is inappropriate then that is my responsibility to do something about it – not that of the government.

And this was the view of the Howard Government which proposed PC-based internet filters – a policy which I have always strongly supported. But what we have in the government’s Internet filtering proposals is a scheme that is likely to be unworkable in practice. But more perniciously it is a scheme that will create the infrastructure for government censorship on a broader scale. Protecting liberty is about protecting freedoms against both known and future threats. Some may argue that we can surely trust a democratically-elected government in Australia to never try to introduce more wide-spread censorship. I am not so sure!


It is interesting that Hockey falls for one of the Conroy confusions, Refused Classification is not the same as illegal. It seems that Joe, in defence of liberty, thinks that it should be his job as a parent to decide what otherwise refused classification material his kids see.

Both Lundy and Hockey look to me like they need to change party. The only party I can see that has a policy that they'd agree with are the Australian Democrats, who now call for;

the introduction of a simplified classification system that can be applied to all media, including new media forms as they are developed. This consistent classification scheme will enable consumers, in particular parents of young adolescents, to be able to identify what kind of content they can expect to see regardless of whether the media is a magazine, movie, television program, game or website.
The Classification Board will be asked to review and standardise the classification categories so there is no differentiation between media. As part of the review the Australian Democrats will require the removal of the 'refused classification' category, replacing this blanket category with informative categories that allow informed decisions or simply extending the existing R18+ and X18+ categories to
cover all legal material currently refused classification.


The Democrats have long been on the search for a new high profile saviour - the next Don Chipp. Maybe they have two.

The flunky fights back

Extraotrdinary. David Smith, sole defender of truth, does it again.

Smith, apart from being a former flunky to the GG, has also become a contributor of note to Quadrant. In that role he has played a bit of a role in defending the idea that there is one correct history. Quadrant of course, and its current editor, Keith Windshuttle, have been fond of regarding any written record as superior to any oral record.

But in refuting Malcolm Fraser's claim Smith goes one further than those who are criticised by his Quadrant fellow travellers.

The argument goes that, because John Kerr did not tell him that the conversation with Fraser included the two disputed points, they cannot have occurred. So we are asked to believe that the absence of heresay evidence is more significant than the evidence of a person who was present and who has a note that purports to be contemporaneous with the conversation.

That Kerr and Fraser may have denied it in the immediately following period, and that Kerr may have left it out of his briefing to Smith, are merely consistent with their concern that the conversation was improper. Would this be the first time people had lied to hide a misdeed?

PS Meanwhile Fraser's co-author Margaret Simons and Gerard Henderson have been having a separate stoush that has been reported in both Crikey and Media Watch Dog. Henderson has asked the pefectly reasonable question of why the time and date on the note is in a different pen than the rest. The supposed answer is that Fraser dated it later that day, but is now relying on a thirty year old memory to make that claim.

It is however interesting to note that Smith claims the extra two conditions were not discussed later at Government House, which means they either were discussed on the phone call or that this note was merely Fraser's idea of what he planned to offer but was never asked to.

At the moment I'm favouring the version in the Fraser book. Ether way, the evidence remains that Kerr handled the situation abomoinably. He should never have ambushed Whitlam. No "advice" from Whitlam as PM was ever enough to stop the GG withdrawing his Commission, and it is entirely unlikly that a "race to the palace" would have seen the Queen remove Kerr' commission.

PPS Perhaps Richard Nixon had the right idea and all conversation in the head of state's offices should be recorded.