Eric Beecher writing today in the Oz notes that the bulk of journalists these days spend their time representing the material provided by various arms of the public relations establishment - or "churnalism".
It is his lead into comments about political writing in Australia (at a book launch), wherein he notes that half the works chosen for a book on the best political writing comes from The Australian and that only a small portion of that comes from the Press Gallery.
It actually offers an interesting perspective on the question of whether Fairfax should combine its SMH and Age Canberra galleries. It is common to refer to the combined coverage that can be found in the Fairfax broadsheets as The Smage, but you have to wonder why between them they don't even come close to the Australian.
The very short answer is that one news-story is likely to have a number of angles. The two Fairfax journalists will both write the same angle - the primary or leading one. If the two papers have the one coverage there is the ability for additional angles to be explored. If you read the Oz political coverage this is what often emerges.
I think the AFR stands outside this process as their reporting is slightly different, always more about the political angle. There does appear to be another option though which is that a merged Smage Business section also makes sense, but it shares some reporting with the AFR. I really don't understand the logic of heavy business sections in the Smage - especially if you want subscriptions can't they come up with a bundled subscription price (like $1 for the AFR if bought with a Smage?)
....at which point I got bored.
Monday, March 30, 2009
Thursday, March 26, 2009
Fire these Defence Department stooges
Defence Minister Joel Fitzgibbon has referred to his Department as "incompetent" over its handling of SAS pay. We are now told that in apparent retaliation the Department is raising concerns about his relationship with a Chinese business woman.
This is incredibly bizarre! It is not wrong of the Department to assess whether a Minister might be a security risk - what is bizarre is the suggestion that this relationship could create a security risk or that the Department thinks it appropriate to leak the details of their investigation.
Firstly, relationships are likely to be problems when they are secret - not when they are overt. Fitzgibbon has not attempted to hide this reationship in any way.
Secodly, business relationships with Chinese businesses are not security risks - or if they are there is no one in politics on either side of the house, nor any Australian businessman who is not a security risk. The fact that a Chinese business has managers who are Communist Party officials is an indication that ou are dealing with a substantial business, not that it is a threat. Anyone who thinks the Chinese Communist Party is anything other than just a ruling faction in China is delusional. here is no evidence that the Chinese Communist Party is an internationally subversive force the way the Communists were under Mao in China or under Stalin in Russia. The Chines Communist Party is about as philosophically motivated as the ALP Right!
Thirdly, if Defence had real concerns they would presumably first take them to the Prime Minister. The idea that Defence itself leaks information that supposedly has national security implications is a far bigger national security implication than the content of the leak.
John Howard and his Ministers could famously never control the Defence bureaucracy. It needs to be cleaned out from Assistant Secretary level up. In fact the Government might like to contemplate th well tried technique for sorting out this mess - recreate separate Departments of Army, Navy and Air Force. Nohing like a restructure to enable a spill of positions.
This is incredibly bizarre! It is not wrong of the Department to assess whether a Minister might be a security risk - what is bizarre is the suggestion that this relationship could create a security risk or that the Department thinks it appropriate to leak the details of their investigation.
Firstly, relationships are likely to be problems when they are secret - not when they are overt. Fitzgibbon has not attempted to hide this reationship in any way.
Secodly, business relationships with Chinese businesses are not security risks - or if they are there is no one in politics on either side of the house, nor any Australian businessman who is not a security risk. The fact that a Chinese business has managers who are Communist Party officials is an indication that ou are dealing with a substantial business, not that it is a threat. Anyone who thinks the Chinese Communist Party is anything other than just a ruling faction in China is delusional. here is no evidence that the Chinese Communist Party is an internationally subversive force the way the Communists were under Mao in China or under Stalin in Russia. The Chines Communist Party is about as philosophically motivated as the ALP Right!
Thirdly, if Defence had real concerns they would presumably first take them to the Prime Minister. The idea that Defence itself leaks information that supposedly has national security implications is a far bigger national security implication than the content of the leak.
John Howard and his Ministers could famously never control the Defence bureaucracy. It needs to be cleaned out from Assistant Secretary level up. In fact the Government might like to contemplate th well tried technique for sorting out this mess - recreate separate Departments of Army, Navy and Air Force. Nohing like a restructure to enable a spill of positions.
Wednesday, March 25, 2009
Paul Krugman the hit
How cool is this - a song about a Nobel Prize wining economist!
However, I'm not sure we actually do want the star economist in the administration. There is a lot to be said for keeping the best brains in the commentariat.
However, I'm not sure we actually do want the star economist in the administration. There is a lot to be said for keeping the best brains in the commentariat.
Rounding
Anyone who knows anything about maths knows that when you have to sum a series of numbers that might have more decimal places than you want in the result, the decision on whether to round before or after the addition makes a difference.
Let's take the simple example of adding 1.4 and 2.3 for a result that we want to be an integer. If we round first the result is 3 (1 plus 2), if we round after the result is 4 (3.7 rounded up).
It even matters if what you always do is round downn (or take the integer part). Now add 1.4, 2.3 and 3.6. If we round (or truncate) first the result is 6, if we round second the result is 7 (7.3 rounded down).
The story today about Telstra putting amounts to three decimal places (of dollars) on bills is therefore interesting. What isn't clear is whether this reflects the way they've always calculated. It also isn't clear whether any of their charges mightn't have relevant fourth decimal places.
It appears from the comments that the issue arises from adding the 10% GST, but the problem goes away if GST is added on the total rather than the individual charges.
But the best hoot of all was the final comment attributed to the Telstra spokesman;
It is also important to note that the 'Total Due' is rounded to two decimal points.
One would hope so - the industry has been bedevilled enough with customer stories of bills for $0.00 - imagine getting a bill for $33.333 and paying $33.33 - and then getting the wonderous bill for $0.003. That would set a new benchmark for telco stupidity.
Let's take the simple example of adding 1.4 and 2.3 for a result that we want to be an integer. If we round first the result is 3 (1 plus 2), if we round after the result is 4 (3.7 rounded up).
It even matters if what you always do is round downn (or take the integer part). Now add 1.4, 2.3 and 3.6. If we round (or truncate) first the result is 6, if we round second the result is 7 (7.3 rounded down).
The story today about Telstra putting amounts to three decimal places (of dollars) on bills is therefore interesting. What isn't clear is whether this reflects the way they've always calculated. It also isn't clear whether any of their charges mightn't have relevant fourth decimal places.
It appears from the comments that the issue arises from adding the 10% GST, but the problem goes away if GST is added on the total rather than the individual charges.
But the best hoot of all was the final comment attributed to the Telstra spokesman;
It is also important to note that the 'Total Due' is rounded to two decimal points.
One would hope so - the industry has been bedevilled enough with customer stories of bills for $0.00 - imagine getting a bill for $33.333 and paying $33.33 - and then getting the wonderous bill for $0.003. That would set a new benchmark for telco stupidity.
Friday, March 20, 2009
Telstra wasn't "excluded"
In their articles today about the action by the ACCC against Telstra both Matt O'Sullivan in the SMH and Dominic White in the AFR (behind a paywall) refer to Telstra as having been "excluded" from the NBN tender.
As a choice of language this is misleading. It suggests that there existed some option for the Government to include or exclude them. There never was such an option once the tender closed, no matter how much some like to think that a way could have been found around the "technicality".
The reality is that Telstra failed to lodge a valid bid for the NBN. Telstra shareholders (of which I am one) need to be under no illusion that the reason they are not part of the NBN is because of Telstra's actions - not the Government's.
Meanwhile both Matt and Dominic tried to link the ACCC's action to the policy desire of the Government for separation. The implication is that the ACCC is doing the Government's bidding. The legal position is that the ACCC is an independent regulator and cannot be directed by the Government in this way.
There is, unfortunately, a deeply ingrained cynicism about this independence that implies that at least the ACCC and Government would be in consort, that there is an agreement without direction. I can understand the basis of the idea, but ACCC Commissioners are not renowned for letting their independence to be compromised.
In the specific case I'm note sure I follow the link, and I'm pretty sure the Government needs no other motivation nor justification than delivering the NBN.
As a choice of language this is misleading. It suggests that there existed some option for the Government to include or exclude them. There never was such an option once the tender closed, no matter how much some like to think that a way could have been found around the "technicality".
The reality is that Telstra failed to lodge a valid bid for the NBN. Telstra shareholders (of which I am one) need to be under no illusion that the reason they are not part of the NBN is because of Telstra's actions - not the Government's.
Meanwhile both Matt and Dominic tried to link the ACCC's action to the policy desire of the Government for separation. The implication is that the ACCC is doing the Government's bidding. The legal position is that the ACCC is an independent regulator and cannot be directed by the Government in this way.
There is, unfortunately, a deeply ingrained cynicism about this independence that implies that at least the ACCC and Government would be in consort, that there is an agreement without direction. I can understand the basis of the idea, but ACCC Commissioners are not renowned for letting their independence to be compromised.
In the specific case I'm note sure I follow the link, and I'm pretty sure the Government needs no other motivation nor justification than delivering the NBN.
Thursday, March 19, 2009
Executive Pay
I'm a big fan of Stephen Conroy. I particularly love the story in today's SMH* in which he asked the BCA's loobyist if ay CEOs or their family members had been kidnapped - that being the great fear they all apparently had about disclosure of executive remuneration.
But executive pay really is a tough issue. It is tough first because it is based on erroneous analysis. This is the analysis attributable to Milton Friedman that executive pay needed to be aligned to shareholder interests to ensure they acted in the interests of the shareholder. This was a response to a supposed principal/agent problem, that CEOs and execs (the agents) had different motives than shareholders (the principal).
The facts of this "problem" had been detailed in a sudy by Berle and Means - who found execs did do things like grow the company's reputation because it made them look good and a whole lot of other stuff. But the error comes in assuming that the purpose of the company is "to create shareholder value". It never is.
When someone forms a new company they do so because they have seen a need in the market that they think they can fulfill, and can do so better or cheaper than someone else. To fulfill that ambition they need capital, and they convince shareholders to subscribe that capital. But the purpose of the company is meeting that market need, returning a return to investors is the price for getting their money.
Unfortunately, the motivation to create shareholder value actually sees executives mostly pursuing strategies quite divorced from that true purpose. Most particularly it feeds a motivation to monopolise markets.
Expecting boards to get tough is naive Boards won't get tough until the erroneous paradigm is removed. If the plan to kerb payouts pushes base salaries higher that is probably no bad thing - CEOs will stop engaging in strategies to manipulate stock markets and focus instead on customer satisfaction and production efficiency.
The ones to really feel sorry for as the US politicians who have to deal with the fact that companies bailed out with Government money still pay bonuses. That's because the whole idea of "at risk" pay itself has been a fraud. That and the fact that there is a labour market for executives. AIG can't trade itself out of where it is if it can't get execs. And the exec labour market is quite well informed (at the top end) about the going rate for their skills, because the disclosure laws ensure there is plenty of market information.
The big solution is to get off the "at risk" kick. It has never really worked. to align interests pay execs a share of compensation (that could be variable with performance) in the form of Zero Priced options. These should be covered by the Fringe Benefit Tax rules (valued at market at point of issue and tax paid by company). Ideally these are in a form of escrow for three to five years, the exec gets the dividends but can't sell the securities till they come out of escrow. The issued options don't "expire" on resignation - the exec remains concerned about the future of the company after they leave.
Slightly harder for non-listed companies - but actually not impossible.
* Note to the SMH - he is a Stephen with a "ph" not a "v".
But executive pay really is a tough issue. It is tough first because it is based on erroneous analysis. This is the analysis attributable to Milton Friedman that executive pay needed to be aligned to shareholder interests to ensure they acted in the interests of the shareholder. This was a response to a supposed principal/agent problem, that CEOs and execs (the agents) had different motives than shareholders (the principal).
The facts of this "problem" had been detailed in a sudy by Berle and Means - who found execs did do things like grow the company's reputation because it made them look good and a whole lot of other stuff. But the error comes in assuming that the purpose of the company is "to create shareholder value". It never is.
When someone forms a new company they do so because they have seen a need in the market that they think they can fulfill, and can do so better or cheaper than someone else. To fulfill that ambition they need capital, and they convince shareholders to subscribe that capital. But the purpose of the company is meeting that market need, returning a return to investors is the price for getting their money.
Unfortunately, the motivation to create shareholder value actually sees executives mostly pursuing strategies quite divorced from that true purpose. Most particularly it feeds a motivation to monopolise markets.
Expecting boards to get tough is naive Boards won't get tough until the erroneous paradigm is removed. If the plan to kerb payouts pushes base salaries higher that is probably no bad thing - CEOs will stop engaging in strategies to manipulate stock markets and focus instead on customer satisfaction and production efficiency.
The ones to really feel sorry for as the US politicians who have to deal with the fact that companies bailed out with Government money still pay bonuses. That's because the whole idea of "at risk" pay itself has been a fraud. That and the fact that there is a labour market for executives. AIG can't trade itself out of where it is if it can't get execs. And the exec labour market is quite well informed (at the top end) about the going rate for their skills, because the disclosure laws ensure there is plenty of market information.
The big solution is to get off the "at risk" kick. It has never really worked. to align interests pay execs a share of compensation (that could be variable with performance) in the form of Zero Priced options. These should be covered by the Fringe Benefit Tax rules (valued at market at point of issue and tax paid by company). Ideally these are in a form of escrow for three to five years, the exec gets the dividends but can't sell the securities till they come out of escrow. The issued options don't "expire" on resignation - the exec remains concerned about the future of the company after they leave.
Slightly harder for non-listed companies - but actually not impossible.
* Note to the SMH - he is a Stephen with a "ph" not a "v".
How to hurt the alcohol companies - not
If you were a Senator from a part calling itself "Family First" you probably would think about alcohol a lot, after all it plays a big part in family breakdowns and is becoming particularly brutal on the young.
So if someone told you that your vote in the Senate told you you wold give to the distillers a $300M bonus, would you vote to do that? Well, Steve Fielding did.
If you were told you could vote for a $50M campaign against binge drinking then? Apparently not, at least Steve Fielding didn't.
If your vote would mean a tax that has seen a thirty percent decline in the sale of "alcopops", would you vote to keep that happening? Well, now we know if you were Steve Fielding you wouldn't.
In one of the most idiotic pieces of parliamentary voting to attempt to demonstrate you sould be taken seriously, enator Fielding voted against the tax Why? Because he just wanted so much more - he wanted a ban on alcohol advertising in sport (in the daytimeI think - like the kids don't atch at night or something).
Senator Fielding wouldn't pick up a ten dollar note at his feet because if he just kept going he might find a one hundred dollar one instead. Senator Fieldng's idea of negotiation is to ramble in the Senate and propose prices simply too high to secure his vote - especially when the Government gets to look like the good guys.
The Harvard negotiation process taught in the book Getting to Yes should be an essential read for the Senator. Two things. First, negotiate from principle not position. second, know what your best and worst alternatives are to a negotiated outcome.
Good one Steve - you didn't get what you asked for, and we got nothing instead. Someone help this man, please! God sure as heck isn't!
So if someone told you that your vote in the Senate told you you wold give to the distillers a $300M bonus, would you vote to do that? Well, Steve Fielding did.
If you were told you could vote for a $50M campaign against binge drinking then? Apparently not, at least Steve Fielding didn't.
If your vote would mean a tax that has seen a thirty percent decline in the sale of "alcopops", would you vote to keep that happening? Well, now we know if you were Steve Fielding you wouldn't.
In one of the most idiotic pieces of parliamentary voting to attempt to demonstrate you sould be taken seriously, enator Fielding voted against the tax Why? Because he just wanted so much more - he wanted a ban on alcohol advertising in sport (in the daytimeI think - like the kids don't atch at night or something).
Senator Fielding wouldn't pick up a ten dollar note at his feet because if he just kept going he might find a one hundred dollar one instead. Senator Fieldng's idea of negotiation is to ramble in the Senate and propose prices simply too high to secure his vote - especially when the Government gets to look like the good guys.
The Harvard negotiation process taught in the book Getting to Yes should be an essential read for the Senator. Two things. First, negotiate from principle not position. second, know what your best and worst alternatives are to a negotiated outcome.
Good one Steve - you didn't get what you asked for, and we got nothing instead. Someone help this man, please! God sure as heck isn't!
Tuesday, March 17, 2009
AE Report on Broadband
Telstra has published a report by Access Economics Impacts of a national high-speed broadband network.
I've made a short comment on the Telstra site, "Would anyone believe me if I said this was an excellent report?"
I was tempted to write a longer comment like;
Would anyone believe me if I said this was an excellent report? Has anyone noted that the cost of a two year delay now ($3.2B over the period 2009-2020) is probaly much the same as the two year delay we've just had?
And that delay was created by ... Telstra! Not the ACCC, not the Government. Telstra decided it would delay the investment. You know what economists call people who can delay an investment without fear of a competitive response - they call them "monopolists". That's a title Telstra tries to deny but demonstrates daily it owns.
The basis for blaming the others was over the notional prices that could be charged - all higher than the current broadbnd prices. But the AE analysis is based, from what I can figure out in the report, as constant prices. Please tell me Dr Warren if I'm wrong.
But at the moment I'm trying to be nice and put my cynicism away and embrace the Telstra "call for peace".
I've made a short comment on the Telstra site, "Would anyone believe me if I said this was an excellent report?"
I was tempted to write a longer comment like;
Would anyone believe me if I said this was an excellent report? Has anyone noted that the cost of a two year delay now ($3.2B over the period 2009-2020) is probaly much the same as the two year delay we've just had?
And that delay was created by ... Telstra! Not the ACCC, not the Government. Telstra decided it would delay the investment. You know what economists call people who can delay an investment without fear of a competitive response - they call them "monopolists". That's a title Telstra tries to deny but demonstrates daily it owns.
The basis for blaming the others was over the notional prices that could be charged - all higher than the current broadbnd prices. But the AE analysis is based, from what I can figure out in the report, as constant prices. Please tell me Dr Warren if I'm wrong.
But at the moment I'm trying to be nice and put my cynicism away and embrace the Telstra "call for peace".
Federal Court and Part XIC
I've had a few people contact me to ask my opinion of the decision last week of the full Federal Court to set aside the Australian Competition Tribunal's decision to overturn the ACCC's decision to grant some exemptions to Telstra for the supply of the Wholesale Line Rental Service and the Local Carriage Service (WLR and LCS).
I don't think I'm being primarily asked my opinion on the law - I am no lawyer. But I'm more than happy to give my bush lawyer interpretation. I'm primarily being asked my interpretation on strategy and policy implications.
Let's talk strategy first - as Telstra is peddling this as a great win. On one level I don't see that. If Telstra successfully withdraws the resale products it simply drives its wholesale customers faster onto the ULL and LSS based products. So Telstra has spent money to win a court case to speed up its revenue losses. The precedent value could be useful in other cases, though the Telstra application in relation to Optus HFC was rejected. But really the precedent value was not that significant (as we will see the Full Court provided some guidance about discretion and the need to consider all matters, but as an indication nothing in the judgement would help Telstra in the HFC matter).
The second question is whether the inferred support of the Court (at para 275) for the "ladder of investment" has an impact on policy and hence the NBN. Thankfully the court in this case is merely only required to interpret law and its actions may facilitate the way law is drafted to give effect to policy, not require policy to be formed in certain ways. The real import of the Court's comment was that it is insufficient for the ACCC to believe that an action didn't promote competition as the LTIE test includes three "limbs" and the limb on promoting efficient investment also had to be analysed.
This is actually a terribly depressing conclusion because it reflects on the ongoing inability of the courts to understand competition. I exchanged words with a few lawyers in the pages of the AFR (behind a paywall) about this in the context of the "Birdsville amendment". The lawyers were taking the view that the concept of competition was clear because the High Court had pronounced what it was!
My issue in the current matter is that the Court has confused the promotion of investment with the promotion of efficient investment. Put simply, efficient investment is that category of investment that would be made in a competitive market. As such, a half-way decent economist can demonstrate that competition will be promoted IF AND ONLY IF efficient investment is also promoted. They are not different limbs to the test - they are the same test expressed in different ways.
Hopefully the matter of the ACCC's acceptance of the undertaking will now be reconsidered and the lawyers appearing for the access seekers can mount three different but superior arguments. These are;
1. The relevant market
The Act requires the ACCC to consider the whole market, not part of it. In the current matter the ACCC, in its consideration of the applications, assessed the effect of the exemptions in relation to the Exchange Serving Areas subject to the exemption application. They did not assess the impact outside those areas. This is significant because there is a scale efect in deciding to offer wholesale based services, and service providers can be expected to withdraw from the entire resale and preselection markets if the exemption applies in the ESA's applied for.
This action was contrary to the ACCC's own Telecommunications services declaration provisions: a guide to the declaration provisions of Part XIC of the Trade Practices Act July 1999 which states.
In the Commission’s view, to be satisfied that declaration will promote the long-term interests of end-users, it need not be satisfied that all end-users will benefit. In some instances, the benefits may be confined to a group of endusers,
while in other instances some end-users may be adversely affected. The Commission’s approach will be to consider the flow of benefits and costs, and determine the net or overall benefit to end-users.54 Where the impact of declaration on some end-users is likely to differ from the impact on others, it may be appropriate to identify and
group the end-users for the purpose of analysing the impacts.
The Regional Telecommunications Review was concerned that the Commission was not adequately considering the impact of these geographically based services on regional consumers and recommended;
2.6.1 - The Australian Government require the Australian Competition and Consumer Commission (ACCC), in making a declaration, revocation or exemption determination for a defined geographic area, have regard to the impact in regional Australia of its decisions.
Unfortunately this is one of only four recommendations rejected by the Government, which stated;
The Government rejects this recommendation. In making decisions under the telecommunications access regime, the ACCC already considers the impact on competition in relevant markets. Including the proposed additional legislative criteria would create regulatory uncertainty, delay decision making and increase the possibility of regulatory error.
This is patently untrue as the ACCC did not, in breach of its statutory obligations and its own guidelines, consider the effect of the exemption outside the ESAs subject to the exemption application. The criteria as specified was not "additional" it was merely guidance to ensure the statutory obligation was pursued. It would not increase uncertainty, it would create certainty by ensuring the impacts in other markets were considered. It would not create delay any more than doing its job properly creates delay. It would reduce the risk of regulatory error by reminding the ACCC to include the effects on all markets.
2. Discourage efficient investment
The exemption decision will not promote efficient investment, it will impede it. If access seekers had known in advance that the rule of thumb the ACCC applied would be applied, then the access seekers would never have invested.
The theory of the ladder of investment in one iteration goes that as people climb the ladder you knock out the rungs below. This is nonsense. Firstly it creates barriers to entry for further entrants (hence foregoing the investments they would make to participate at the lower levels), but more importantly it acts as a discouragement to climb the ladder. The ladder is an appropriate analogy - ask yourself would you start climbing a ladder if you knew the rungs beneath you would be knocked out or would ou stay on the ground.
3. Exemption not available
There are very real reasons to believe that the whole concept of a geographically based exemption is contrary to the purpose and intent of the Act. The Act has concepts of declaration and revocation to cover the circumstances where a service has to be provided and when that requirement may no longer apply. The concept of an exemption - both class and individual -is to cover the circumstance of one or more specific CSPs.
Let's first consider the class exemption in 152AS. Is the appropriate procedure if a service should no longer be declared that an exemption for the lass of service providers that is all service providers, or is the appropriate procedure for the declaration to be revoked. The facts are that the legislation provides different procedures for these two circumstances. In general where legislation provides a structure and process for the revocation it should not be permissible to circumvent them.
In the specific instance of the WLR and LCS there is only one service provider who provides the service. The exemption applied for is effectively an exemption for the entire industry. It is clear from the Explanatory Memorandum accompanying the original Bill that this was never the intent of the provision.
This section will enable individual carriers or carriage service providers to present a case to the ACCC that the long-term interests of end-users will be promoted by the limitation or removal of the standard access obligations on that carrier or carriage service provider or which may in the future be placed on that carrier or carriage service provider. Given the service declaration itself (which has industry wide application) was made on the basis that it would promote the long-term interests of end-users, it is appropriate that a similar test apply where an individual seeks to have the relevant obligation removed.
This mechanism could be used in circumstances where infrastructure investments of national or regional significance are proposed which would provide long-term and substantial benefits to end-users of carriage services and services supplied by means of carriage services, but would not proceed or would be severely hampered if the standard access obligations applied in their entirety. The provision is drafted in broad terms because ACCC judgments about the giving of an exemption and the precise nature of exemptions given need to be made on a case-by-case basis.
It is irrelevant what the ACCC's assessment is. The correct process is the process for revocation or variation of the declaration, not the process for exemption.
I don't think I'm being primarily asked my opinion on the law - I am no lawyer. But I'm more than happy to give my bush lawyer interpretation. I'm primarily being asked my interpretation on strategy and policy implications.
Let's talk strategy first - as Telstra is peddling this as a great win. On one level I don't see that. If Telstra successfully withdraws the resale products it simply drives its wholesale customers faster onto the ULL and LSS based products. So Telstra has spent money to win a court case to speed up its revenue losses. The precedent value could be useful in other cases, though the Telstra application in relation to Optus HFC was rejected. But really the precedent value was not that significant (as we will see the Full Court provided some guidance about discretion and the need to consider all matters, but as an indication nothing in the judgement would help Telstra in the HFC matter).
The second question is whether the inferred support of the Court (at para 275) for the "ladder of investment" has an impact on policy and hence the NBN. Thankfully the court in this case is merely only required to interpret law and its actions may facilitate the way law is drafted to give effect to policy, not require policy to be formed in certain ways. The real import of the Court's comment was that it is insufficient for the ACCC to believe that an action didn't promote competition as the LTIE test includes three "limbs" and the limb on promoting efficient investment also had to be analysed.
This is actually a terribly depressing conclusion because it reflects on the ongoing inability of the courts to understand competition. I exchanged words with a few lawyers in the pages of the AFR (behind a paywall) about this in the context of the "Birdsville amendment". The lawyers were taking the view that the concept of competition was clear because the High Court had pronounced what it was!
My issue in the current matter is that the Court has confused the promotion of investment with the promotion of efficient investment. Put simply, efficient investment is that category of investment that would be made in a competitive market. As such, a half-way decent economist can demonstrate that competition will be promoted IF AND ONLY IF efficient investment is also promoted. They are not different limbs to the test - they are the same test expressed in different ways.
Hopefully the matter of the ACCC's acceptance of the undertaking will now be reconsidered and the lawyers appearing for the access seekers can mount three different but superior arguments. These are;
1. The relevant market
The Act requires the ACCC to consider the whole market, not part of it. In the current matter the ACCC, in its consideration of the applications, assessed the effect of the exemptions in relation to the Exchange Serving Areas subject to the exemption application. They did not assess the impact outside those areas. This is significant because there is a scale efect in deciding to offer wholesale based services, and service providers can be expected to withdraw from the entire resale and preselection markets if the exemption applies in the ESA's applied for.
This action was contrary to the ACCC's own Telecommunications services declaration provisions: a guide to the declaration provisions of Part XIC of the Trade Practices Act July 1999 which states.
In the Commission’s view, to be satisfied that declaration will promote the long-term interests of end-users, it need not be satisfied that all end-users will benefit. In some instances, the benefits may be confined to a group of endusers,
while in other instances some end-users may be adversely affected. The Commission’s approach will be to consider the flow of benefits and costs, and determine the net or overall benefit to end-users.54 Where the impact of declaration on some end-users is likely to differ from the impact on others, it may be appropriate to identify and
group the end-users for the purpose of analysing the impacts.
The Regional Telecommunications Review was concerned that the Commission was not adequately considering the impact of these geographically based services on regional consumers and recommended;
2.6.1 - The Australian Government require the Australian Competition and Consumer Commission (ACCC), in making a declaration, revocation or exemption determination for a defined geographic area, have regard to the impact in regional Australia of its decisions.
Unfortunately this is one of only four recommendations rejected by the Government, which stated;
The Government rejects this recommendation. In making decisions under the telecommunications access regime, the ACCC already considers the impact on competition in relevant markets. Including the proposed additional legislative criteria would create regulatory uncertainty, delay decision making and increase the possibility of regulatory error.
This is patently untrue as the ACCC did not, in breach of its statutory obligations and its own guidelines, consider the effect of the exemption outside the ESAs subject to the exemption application. The criteria as specified was not "additional" it was merely guidance to ensure the statutory obligation was pursued. It would not increase uncertainty, it would create certainty by ensuring the impacts in other markets were considered. It would not create delay any more than doing its job properly creates delay. It would reduce the risk of regulatory error by reminding the ACCC to include the effects on all markets.
2. Discourage efficient investment
The exemption decision will not promote efficient investment, it will impede it. If access seekers had known in advance that the rule of thumb the ACCC applied would be applied, then the access seekers would never have invested.
The theory of the ladder of investment in one iteration goes that as people climb the ladder you knock out the rungs below. This is nonsense. Firstly it creates barriers to entry for further entrants (hence foregoing the investments they would make to participate at the lower levels), but more importantly it acts as a discouragement to climb the ladder. The ladder is an appropriate analogy - ask yourself would you start climbing a ladder if you knew the rungs beneath you would be knocked out or would ou stay on the ground.
3. Exemption not available
There are very real reasons to believe that the whole concept of a geographically based exemption is contrary to the purpose and intent of the Act. The Act has concepts of declaration and revocation to cover the circumstances where a service has to be provided and when that requirement may no longer apply. The concept of an exemption - both class and individual -is to cover the circumstance of one or more specific CSPs.
Let's first consider the class exemption in 152AS. Is the appropriate procedure if a service should no longer be declared that an exemption for the lass of service providers that is all service providers, or is the appropriate procedure for the declaration to be revoked. The facts are that the legislation provides different procedures for these two circumstances. In general where legislation provides a structure and process for the revocation it should not be permissible to circumvent them.
In the specific instance of the WLR and LCS there is only one service provider who provides the service. The exemption applied for is effectively an exemption for the entire industry. It is clear from the Explanatory Memorandum accompanying the original Bill that this was never the intent of the provision.
This section will enable individual carriers or carriage service providers to present a case to the ACCC that the long-term interests of end-users will be promoted by the limitation or removal of the standard access obligations on that carrier or carriage service provider or which may in the future be placed on that carrier or carriage service provider. Given the service declaration itself (which has industry wide application) was made on the basis that it would promote the long-term interests of end-users, it is appropriate that a similar test apply where an individual seeks to have the relevant obligation removed.
This mechanism could be used in circumstances where infrastructure investments of national or regional significance are proposed which would provide long-term and substantial benefits to end-users of carriage services and services supplied by means of carriage services, but would not proceed or would be severely hampered if the standard access obligations applied in their entirety. The provision is drafted in broad terms because ACCC judgments about the giving of an exemption and the precise nature of exemptions given need to be made on a case-by-case basis.
It is irrelevant what the ACCC's assessment is. The correct process is the process for revocation or variation of the declaration, not the process for exemption.
Monday, March 16, 2009
Pure Gold
That was the subject line on the e-mail that gave me the link to the video below.
It is hard to take any journalist seriuosly these days - but the worst of the lot are the financial journalists on TV. To think that I once tried to put a TV business channel together!
It is hard to take any journalist seriuosly these days - but the worst of the lot are the financial journalists on TV. To think that I once tried to put a TV business channel together!
Tuesday, March 10, 2009
Telstra and "credible threats"
Having been excluded from the NBN Telstra has been positioning a view of "unconcern" claiming they don't need the NBN, they can deliver the outcome with their HFC and wireless assets.
Today they've announced plans to upgrade their HFC which has at least one commentator, Stephen Bartholomeusz, convinced that this move is "diabolically timed and conceived".
Well, not really. A couple of stand out obvious facts. The first is that the 100M speed on HFC is, just like wireless, a shared speed and not guaranteed to any user. Secondly, the problem with HFC remains that there isn't a lead-in already to most premises - which is the stand out reason for both Telstra and Optus preferring DSL connections for broadband.
Far more significantly if this was a killer blow at the relatively low cost it would have been done either before now and certainly for more than Melbourne. In the language of strategy this is a desparate attempt to make the option into a "credible threat". Bad news is that it fails for all but the media and the stock analysts - real telcos and hopefully policy analysts aren't convinced.
They sufer the same weakness on the wireless capability - no matter how many Guiness World Records hey get awarded they have diddly squat speed as a wireless network. Their peak speeds fall away once shared, and unlike the WiMAX operator don't have the spectrum to serve significant customer numbers.
Good try Telstra - but you need to do more than that!
Today they've announced plans to upgrade their HFC which has at least one commentator, Stephen Bartholomeusz, convinced that this move is "diabolically timed and conceived".
Well, not really. A couple of stand out obvious facts. The first is that the 100M speed on HFC is, just like wireless, a shared speed and not guaranteed to any user. Secondly, the problem with HFC remains that there isn't a lead-in already to most premises - which is the stand out reason for both Telstra and Optus preferring DSL connections for broadband.
Far more significantly if this was a killer blow at the relatively low cost it would have been done either before now and certainly for more than Melbourne. In the language of strategy this is a desparate attempt to make the option into a "credible threat". Bad news is that it fails for all but the media and the stock analysts - real telcos and hopefully policy analysts aren't convinced.
They sufer the same weakness on the wireless capability - no matter how many Guiness World Records hey get awarded they have diddly squat speed as a wireless network. Their peak speeds fall away once shared, and unlike the WiMAX operator don't have the spectrum to serve significant customer numbers.
Good try Telstra - but you need to do more than that!
Turnbull should call a spill
Dennis Shanahan has today in The Oz claimed that Turnbull is being squeezed from both sides.
I've already commented on the way I think Turnbull needs to respond to the pressure coming from Government, and it isn't by going further to the right. His other problem is Costello.
There is a time-honoured method for dealing with "leadership wraiths..who are not in the fray" (as Costello is described by Shanahan). That is to smoke them out. Turnbull should stride into a party room meeting in this fortnight and announce a spill of ALL leadership positions on the basis that the speculation about whether Peter Costello wants his turn or not is damaging the party. While he is at it he can manage Julie Bishop out of the Deputy's job.
He must know he'd win and he must know that he would permanently destroy Costello. If he doesn't win the only other possible winner is Costello and Turnbull is then perfectly positioned for his return after the election as the leader denied his opportunity by the instability caused by Costello. By the way, the much held belief that Costello's parliamentary skill would shine on the opposition front bench is not currently being upheld by his wildly inconsistent performance in the media.
It is important for Turnbull to act now because he needs the issue gone before the parliament resumes for the budget in May. Now is the time.
I've already commented on the way I think Turnbull needs to respond to the pressure coming from Government, and it isn't by going further to the right. His other problem is Costello.
There is a time-honoured method for dealing with "leadership wraiths..who are not in the fray" (as Costello is described by Shanahan). That is to smoke them out. Turnbull should stride into a party room meeting in this fortnight and announce a spill of ALL leadership positions on the basis that the speculation about whether Peter Costello wants his turn or not is damaging the party. While he is at it he can manage Julie Bishop out of the Deputy's job.
He must know he'd win and he must know that he would permanently destroy Costello. If he doesn't win the only other possible winner is Costello and Turnbull is then perfectly positioned for his return after the election as the leader denied his opportunity by the instability caused by Costello. By the way, the much held belief that Costello's parliamentary skill would shine on the opposition front bench is not currently being upheld by his wildly inconsistent performance in the media.
It is important for Turnbull to act now because he needs the issue gone before the parliament resumes for the budget in May. Now is the time.
Monday, March 09, 2009
The story that keeps on giving
Kevin Rudd's latest contribution to The Monthly (now available online)is a story that keeps on giving. If it weren't enough that former Liberal leader (and PM) John Howard had a go at it, it is now Malcolm Turnbull's turn, writing in the Oz.
It really is an interesting exercise that these leading Liberals have embarked on. Rudd in his essay has not sought to criticise capitalism per se, merely neo-liberalism and is attendant "extreme capitalism". In coming out and criticising the Rudd piece they are, I think unwittingly, allowing themselves to be driven to the right. Let's face it the avowed wisdom in Australian politics (and indeed of public choice theory), that the party that occupies the middle ground wins.
The criticism that Rudd was first touting himself as an economic conservative and is now criticising previous economic policy misses the point that Rudd has probably never waivered from the late twentieth century view of "social democracy" which is that markets are efficient but not always equitable, and that markets on their own are inherently unstable. But like a latter day health professional who would promote "harm minimisation" as the correct response to the illicit drug menace, the modern social democrat aproach to markets is that they mostly work but can fail.
Turnbull himself seems to lay two charges at Rudd. The first is that in his attacks on neo-liberalism he is revealing himself to be a socialist. The second is that Rudd is a hypocrite as he has personally benefitted from the policies of neo-liberalism.
On the first charge, Turnbull wrote;
Well, all of that is cast away now. Instead, he preaches social democracy. It is important to remember that social democrat (sic) was a term created by avowedly socialist political parties in Europe who wanted to emphasise that they were (unlike their communist comrades) committed to achieving a socialist society through democratic means as opposed to violent revolution.
This is actually a piece of revisionism. The non-communist socialists of Turnbull's recollection are democratic socialists. Social democrats and democratic socialists are, in fact, different creatures. Social democrats are a bread of democrats who argue that true democracy is not achieved until not only is the political playing field levelled (by the vote) but the socio-economic playing field is also levelled - their most common catch-phrase is "equality of opportunity" and is associated with social goods like quality public education for all and universal health care. Robert Menzies was more social democrat than he was neo-liberal. The party he named the "Liberal Party" was modelled on the nineteenh century European concept of liberal, not the laissez-faire imaginings of the neo-liberals.
Turnbull's piece may have worked in its attempts to portray Rudd as a dangerous left-winger if it were not for his attempt to label Rudd a hypocrite because of his wife's business interests. It is unclear from the article whether Turnbull's complaint is that Therese Rein has engaged in capitalism as such, or wether it is because her particular business survived on outsourced government programs.
If it is the former it is a poorly laid claim as Rudd is not anti-capitalist. If it is the latter it is also vacuous, as the policy would have been pursued by Howard whether Rein was a participant or not. The fact that the firm specialises in finding work for the disabled and that this was its founding principle without the issue of subsidies seems to have escaped Turbull.
In any case, exactly how far is one meant to go in not participating just because of a philosophical difference? Rodney Cavalier, a man who would still describe himself as a true socialist, disclosed in his pecuniary interests as a NSW Minister that he held shares in BHP. When pursued by the then opposition over this apparent conflict he said words to the effect of "There is nothing in the socialist scriptures that says you have to impoverish yourself in the capitalist phase." (Anyone who can find the exact quote in Hansard would be appreciated).
The criticism of Rein was a great error as it has led to a number of critical stories. This has resulted in the ultimate charge - Rudd as dangerous socialist - being lost.
Meanwhile Paul Sheehan has mounted his own attack in the SMH. Sheehan's critique is, like Turnbull's, first based on a criticism of Rudd as being inconsistent, though Sheehan likens it to Whitlam (without any real explanation). His first criticism is that Rudd sprayed "the entire $20B surplus he inherited up against the wall". Sheehan should take a first course in macroeconomics and learn about automatic stabilisers - when an economy turns downwards the Government's revenues decrease (less income and expenditure to tax) an its outgoings (mostly in transfer payments in pensions and other benefits) increase. That alone took care of the surplus.
Sheehan's second claim is that "The evolution of his economic position has been an opportunistic fraud, exposed by those on his own side of politics." It is probably news to anyone in the ALP that Michael Costa and Mark Latham are still on their side of politics - there is some doubt they ever were.
His third claim comes from Niall Ferguson's website in what is now a much quoted view that Government's are doing the wrong thing solving the current problem by creating more debt. Before discussing this let's remember that Ferguson is first and foremost a historian (I happen to be currently reading his entertaining Empire: How Britain made the modern world), albeit an economic historian.
His prescription is probably right that the medium to long term requirement is a reduction in debt, but that does not mean it is the immediate solution. The immediate solution is to ensure that lots of otherwise viable businesses (and households) don't collapse simply because of a suddent contraction of credit. The core assumption here is that the contraction of credit is excessively large motivated as it is by the underlying information problem - no one knows what a reasonable credit risk is anymore. Step one has to be stabilising this situation.
Steps two and three are to then reduce the total debt position and to fix the information problem permanently. The first is already happening in the many companies that are raising new capital, and will continue firther when national governments sell down their positions in banks. The second is caught up in the general question of the regulation of the financial system. Let's return to an earlier topic and the existing regulation of the finance sector. In Australia and most other countries the focus of financial regultion has been on the capital adequacy of deposit taking institutions, thus measuring the security of bank deposits. Various new products were constructed as "off balance sheet" - as they were funded through wholesale fund markets they didn't count for capital adequacy.
The extent of the problem depended o how much of the business of banks wound up in these activities. The assumption was that as all these activities were between financial institutions the borrowers and lenders didn't need legislative protection they could all make their own informed inquiries. Three things went wrong with this; (1) the borrowers relied pon ratings from ratings agencies that were based on wrong assumptions and biased by the changed business model for the rating agency (based on fees from the lender rather than from the borrower), (2) institutions themselves started to rely upon market volume as justification rather than questioning fundamentals and (3) the consequences of error were not confined to the parties involved in the transactions.
These errors are easily fixed by bringing an end to "off-balance sheet" activity, simply requiring appropriate capital adequacy rules for all lenders. There are some other tricks that can then be applied including discounting the weighting of assets that might be going through price bubbles - a capital markets version of automatic stabilisers.
In summary, Kevin Rudd is on the right track in his criticism of the form of capitalism practiced over the last two decades, his short term prescriptions are right - but he needs to do a whole lot more work on formulating and enunciating the "regulatory" policies and philosophy that needs to underpin the remaking of global commerce. Malcolm Turnbull meanwhile just needs to figure out some strategy and stick to it.
It really is an interesting exercise that these leading Liberals have embarked on. Rudd in his essay has not sought to criticise capitalism per se, merely neo-liberalism and is attendant "extreme capitalism". In coming out and criticising the Rudd piece they are, I think unwittingly, allowing themselves to be driven to the right. Let's face it the avowed wisdom in Australian politics (and indeed of public choice theory), that the party that occupies the middle ground wins.
The criticism that Rudd was first touting himself as an economic conservative and is now criticising previous economic policy misses the point that Rudd has probably never waivered from the late twentieth century view of "social democracy" which is that markets are efficient but not always equitable, and that markets on their own are inherently unstable. But like a latter day health professional who would promote "harm minimisation" as the correct response to the illicit drug menace, the modern social democrat aproach to markets is that they mostly work but can fail.
Turnbull himself seems to lay two charges at Rudd. The first is that in his attacks on neo-liberalism he is revealing himself to be a socialist. The second is that Rudd is a hypocrite as he has personally benefitted from the policies of neo-liberalism.
On the first charge, Turnbull wrote;
Well, all of that is cast away now. Instead, he preaches social democracy. It is important to remember that social democrat (sic) was a term created by avowedly socialist political parties in Europe who wanted to emphasise that they were (unlike their communist comrades) committed to achieving a socialist society through democratic means as opposed to violent revolution.
This is actually a piece of revisionism. The non-communist socialists of Turnbull's recollection are democratic socialists. Social democrats and democratic socialists are, in fact, different creatures. Social democrats are a bread of democrats who argue that true democracy is not achieved until not only is the political playing field levelled (by the vote) but the socio-economic playing field is also levelled - their most common catch-phrase is "equality of opportunity" and is associated with social goods like quality public education for all and universal health care. Robert Menzies was more social democrat than he was neo-liberal. The party he named the "Liberal Party" was modelled on the nineteenh century European concept of liberal, not the laissez-faire imaginings of the neo-liberals.
Turnbull's piece may have worked in its attempts to portray Rudd as a dangerous left-winger if it were not for his attempt to label Rudd a hypocrite because of his wife's business interests. It is unclear from the article whether Turnbull's complaint is that Therese Rein has engaged in capitalism as such, or wether it is because her particular business survived on outsourced government programs.
If it is the former it is a poorly laid claim as Rudd is not anti-capitalist. If it is the latter it is also vacuous, as the policy would have been pursued by Howard whether Rein was a participant or not. The fact that the firm specialises in finding work for the disabled and that this was its founding principle without the issue of subsidies seems to have escaped Turbull.
In any case, exactly how far is one meant to go in not participating just because of a philosophical difference? Rodney Cavalier, a man who would still describe himself as a true socialist, disclosed in his pecuniary interests as a NSW Minister that he held shares in BHP. When pursued by the then opposition over this apparent conflict he said words to the effect of "There is nothing in the socialist scriptures that says you have to impoverish yourself in the capitalist phase." (Anyone who can find the exact quote in Hansard would be appreciated).
The criticism of Rein was a great error as it has led to a number of critical stories. This has resulted in the ultimate charge - Rudd as dangerous socialist - being lost.
Meanwhile Paul Sheehan has mounted his own attack in the SMH. Sheehan's critique is, like Turnbull's, first based on a criticism of Rudd as being inconsistent, though Sheehan likens it to Whitlam (without any real explanation). His first criticism is that Rudd sprayed "the entire $20B surplus he inherited up against the wall". Sheehan should take a first course in macroeconomics and learn about automatic stabilisers - when an economy turns downwards the Government's revenues decrease (less income and expenditure to tax) an its outgoings (mostly in transfer payments in pensions and other benefits) increase. That alone took care of the surplus.
Sheehan's second claim is that "The evolution of his economic position has been an opportunistic fraud, exposed by those on his own side of politics." It is probably news to anyone in the ALP that Michael Costa and Mark Latham are still on their side of politics - there is some doubt they ever were.
His third claim comes from Niall Ferguson's website in what is now a much quoted view that Government's are doing the wrong thing solving the current problem by creating more debt. Before discussing this let's remember that Ferguson is first and foremost a historian (I happen to be currently reading his entertaining Empire: How Britain made the modern world), albeit an economic historian.
His prescription is probably right that the medium to long term requirement is a reduction in debt, but that does not mean it is the immediate solution. The immediate solution is to ensure that lots of otherwise viable businesses (and households) don't collapse simply because of a suddent contraction of credit. The core assumption here is that the contraction of credit is excessively large motivated as it is by the underlying information problem - no one knows what a reasonable credit risk is anymore. Step one has to be stabilising this situation.
Steps two and three are to then reduce the total debt position and to fix the information problem permanently. The first is already happening in the many companies that are raising new capital, and will continue firther when national governments sell down their positions in banks. The second is caught up in the general question of the regulation of the financial system. Let's return to an earlier topic and the existing regulation of the finance sector. In Australia and most other countries the focus of financial regultion has been on the capital adequacy of deposit taking institutions, thus measuring the security of bank deposits. Various new products were constructed as "off balance sheet" - as they were funded through wholesale fund markets they didn't count for capital adequacy.
The extent of the problem depended o how much of the business of banks wound up in these activities. The assumption was that as all these activities were between financial institutions the borrowers and lenders didn't need legislative protection they could all make their own informed inquiries. Three things went wrong with this; (1) the borrowers relied pon ratings from ratings agencies that were based on wrong assumptions and biased by the changed business model for the rating agency (based on fees from the lender rather than from the borrower), (2) institutions themselves started to rely upon market volume as justification rather than questioning fundamentals and (3) the consequences of error were not confined to the parties involved in the transactions.
These errors are easily fixed by bringing an end to "off-balance sheet" activity, simply requiring appropriate capital adequacy rules for all lenders. There are some other tricks that can then be applied including discounting the weighting of assets that might be going through price bubbles - a capital markets version of automatic stabilisers.
In summary, Kevin Rudd is on the right track in his criticism of the form of capitalism practiced over the last two decades, his short term prescriptions are right - but he needs to do a whole lot more work on formulating and enunciating the "regulatory" policies and philosophy that needs to underpin the remaking of global commerce. Malcolm Turnbull meanwhile just needs to figure out some strategy and stick to it.
Thursday, March 05, 2009
The Formula That Lost?
Absolutely brilliant article in Wired on the Gaussian copula function. Put briefly this is the formula that was used in the finance markets to rate securities and created the credit default swaps (CDS)and collatoralised debt obligations (CDO).
Finance lends on risk, but needs to add a premium for uncertainty of risk. If I can add enough things together that look like they've got different uncertainties I can diversify that risk. The idea of the copula function was to measure the correlation of risk. While the maths was elegant and did what it did, the underlying assumptions were invalid. Put simply the one risk that wasn't allowed for was the non-diversifiable risk in mortgages that house prices would fall. But this itself is so unusual that is not surprising - the expectation that house prices don't fall is captured in the saying "safe as houses" or in the Basel convention that residential housing had a risk weighting of 100% in capital adequacy claculation (the bank required no underlying capital to make that kind of loan).
When I was chairman of Endeavour Credit Union we went through a lot of exercises on measuring market (interest rate) risk. The relevant manager Greg West and I discussed how banks did this - usually through an asset and liabilities committee (ALCO) of the Board. He was speculating then (mid 90s) that these committees no longer understood the structure of derivatives well enough to understand the exposures.
And that ultimately was the banks failings. he quants (as they are called) were accurately measuring what they were measuring, the managrs in charge of asset decisions were accurately making decisions on what they thought the measures were measuring. Despite the fact that the few people who knew what both sides of this decision meant were saying that this was unsustainable and bad banking, the joy of the moment and the immediate benefits of bing in it meant the behaviour continued.
In this sense this is little different to the telco execs who believed the WorldCom memo that the internet was doubling every hundred days while knowing they didn't see it in their own traffic. That ended in the dot.com bust of 2000.
What both exercises demonstrate is the core fallacy of the belief in the rational decision making of firms. Firms are just as "boundedly rational" as individuals, perhaps more so. It is a bad policy to rely on the rational decision making of firms.
Finance lends on risk, but needs to add a premium for uncertainty of risk. If I can add enough things together that look like they've got different uncertainties I can diversify that risk. The idea of the copula function was to measure the correlation of risk. While the maths was elegant and did what it did, the underlying assumptions were invalid. Put simply the one risk that wasn't allowed for was the non-diversifiable risk in mortgages that house prices would fall. But this itself is so unusual that is not surprising - the expectation that house prices don't fall is captured in the saying "safe as houses" or in the Basel convention that residential housing had a risk weighting of 100% in capital adequacy claculation (the bank required no underlying capital to make that kind of loan).
When I was chairman of Endeavour Credit Union we went through a lot of exercises on measuring market (interest rate) risk. The relevant manager Greg West and I discussed how banks did this - usually through an asset and liabilities committee (ALCO) of the Board. He was speculating then (mid 90s) that these committees no longer understood the structure of derivatives well enough to understand the exposures.
And that ultimately was the banks failings. he quants (as they are called) were accurately measuring what they were measuring, the managrs in charge of asset decisions were accurately making decisions on what they thought the measures were measuring. Despite the fact that the few people who knew what both sides of this decision meant were saying that this was unsustainable and bad banking, the joy of the moment and the immediate benefits of bing in it meant the behaviour continued.
In this sense this is little different to the telco execs who believed the WorldCom memo that the internet was doubling every hundred days while knowing they didn't see it in their own traffic. That ended in the dot.com bust of 2000.
What both exercises demonstrate is the core fallacy of the belief in the rational decision making of firms. Firms are just as "boundedly rational" as individuals, perhaps more so. It is a bad policy to rely on the rational decision making of firms.
I knew there was a reason
I've got to admit I don't get Twitter. I haven't always been slow. I got SMS. I got blogging. I get IM and various forms of chat and social networking.
I just don't get Twitter.
I am not alone.
I just don't get Twitter.
I am not alone.
Cutting the Fibre
As a final contribution on the Senate NBN committee I want to talk about the the issue of Telstra advising some of its customers of a decision to relocate a sub-exchange in Canberra and the need for the wholesale customers to make other arrangements.
This event was interpretted by the Telstra wholesale customers as "cabinetisation by stealth" and that was the way it was picked up in questioning by the Senate committee. In evidence Telstra explained that the current location of the remote exchange was rented premises and that the new premises would not have space to accomodate the wholesale customer racks. This explanation seems perfectly rational, though does explain why owning premises might be beneficial as Telecom Australia discovered when they had to relocate York Exchange (now the Grace Hotel) to the new Kent Exchange.
But let's unpick some facts here. Issues around "network modernisation" were known from the very start of the provision of the declared unbundled local loop service. The specific issue was the prospect of moving from a deployment at the exchange to a deployment at the pillar - referred to as State A to State B. There were two stumbling blocks - the first was under what circumstances could the network owner decide they needed to move to State B, the second was what timing was required.
There were attempts in 2000 through both the Australian Communications Industry Forum and the then Telecommunications Access Forum to resolve this issue. Unfortunately access seekers mostly focussed on trying to prohibit the activity rather than engage in constructive discussion on what might be appropriate. This allowed Telstra to rely upon the fact that there might be a need to take the action at relatively short notice and hence to insist upon a fifteen week notice period, which they argued was sufficient time for an access seeker to make their own network re-arrangements.
The failure of the parties to engage on rules and processes meant there was no further work. Meanwhile the ACCC pointed out that it has the power to draft a Network Modernisation Code to cover these circumstances and, effectively, told the industry not to bother further resolving the matter as they would deal with it in the Code.
That Code has never been written by the ACCC.
Meanwhile Telstra continued to insert its unilateral fifteen week notice provision in its ULL contracts. The ACCC's draft report rejected the undertaking, and noted that it had not made a definitive view on the network modernisation provisions but hinted that it would not accept them (section 6.2.1 of the report).
In its model non-price terms and conditions for the "core services" the ACCC proposed;
The access provider may re-locate a Facility:
(a) by giving the access seeker an equivalent period of notice (in writing) to that
which it provides itself (and in any event not less than 120 Business Days’ written
notice) before any such re-location is scheduled to take effect;
(b) provided that the access provider shall consult with the access seeker and
negotiate in good faith in relation to any reasonable concerns of the access seeker,
in relation to the proposed re-location; and
(c) provided that the access provider may re-locate a Facility only where it is
reasonably necessary to do so.
These do appear to be reasonable provisions that it looks like Telstra has failed to pursue in this circumstance. Part (a) requires the earliest possible notice to be given and certainly a bit more than Telstra's fifteen weeks. However it together with part (b) would have created the possibility for the access seekers to convince Telstra to lease more space. However, Telstra's real concern would be that acting on (a) could result in regulatory processes to frustrate the move.
The reality is that despite a number of ULL terms and conditions disputes the ACCC has never finally arbitrated on these provisions. By the time they do, the sub-exchange will be relocated. The arbitration process doesn't include the ability to seek compensation for damages.
It could all have been so different. SPAN attempted to introduce some better negotiation skills in the industry later in the decade, through resolution@span. But by then issues like the network modernisation one had been consigned to the too hard basket. Most parties in the industry decided that they would put the ACCC at the centre of the process.
That is the element that has failed, and that is the element that has been the concious choice of all the industry participants. If the telecommunications industry can only progress based on relying on decisions by a Government appointed regulator it has not advanced at all from being a single Government operated network provider.
This event was interpretted by the Telstra wholesale customers as "cabinetisation by stealth" and that was the way it was picked up in questioning by the Senate committee. In evidence Telstra explained that the current location of the remote exchange was rented premises and that the new premises would not have space to accomodate the wholesale customer racks. This explanation seems perfectly rational, though does explain why owning premises might be beneficial as Telecom Australia discovered when they had to relocate York Exchange (now the Grace Hotel) to the new Kent Exchange.
But let's unpick some facts here. Issues around "network modernisation" were known from the very start of the provision of the declared unbundled local loop service. The specific issue was the prospect of moving from a deployment at the exchange to a deployment at the pillar - referred to as State A to State B. There were two stumbling blocks - the first was under what circumstances could the network owner decide they needed to move to State B, the second was what timing was required.
There were attempts in 2000 through both the Australian Communications Industry Forum and the then Telecommunications Access Forum to resolve this issue. Unfortunately access seekers mostly focussed on trying to prohibit the activity rather than engage in constructive discussion on what might be appropriate. This allowed Telstra to rely upon the fact that there might be a need to take the action at relatively short notice and hence to insist upon a fifteen week notice period, which they argued was sufficient time for an access seeker to make their own network re-arrangements.
The failure of the parties to engage on rules and processes meant there was no further work. Meanwhile the ACCC pointed out that it has the power to draft a Network Modernisation Code to cover these circumstances and, effectively, told the industry not to bother further resolving the matter as they would deal with it in the Code.
That Code has never been written by the ACCC.
Meanwhile Telstra continued to insert its unilateral fifteen week notice provision in its ULL contracts. The ACCC's draft report rejected the undertaking, and noted that it had not made a definitive view on the network modernisation provisions but hinted that it would not accept them (section 6.2.1 of the report).
In its model non-price terms and conditions for the "core services" the ACCC proposed;
The access provider may re-locate a Facility:
(a) by giving the access seeker an equivalent period of notice (in writing) to that
which it provides itself (and in any event not less than 120 Business Days’ written
notice) before any such re-location is scheduled to take effect;
(b) provided that the access provider shall consult with the access seeker and
negotiate in good faith in relation to any reasonable concerns of the access seeker,
in relation to the proposed re-location; and
(c) provided that the access provider may re-locate a Facility only where it is
reasonably necessary to do so.
These do appear to be reasonable provisions that it looks like Telstra has failed to pursue in this circumstance. Part (a) requires the earliest possible notice to be given and certainly a bit more than Telstra's fifteen weeks. However it together with part (b) would have created the possibility for the access seekers to convince Telstra to lease more space. However, Telstra's real concern would be that acting on (a) could result in regulatory processes to frustrate the move.
The reality is that despite a number of ULL terms and conditions disputes the ACCC has never finally arbitrated on these provisions. By the time they do, the sub-exchange will be relocated. The arbitration process doesn't include the ability to seek compensation for damages.
It could all have been so different. SPAN attempted to introduce some better negotiation skills in the industry later in the decade, through resolution@span. But by then issues like the network modernisation one had been consigned to the too hard basket. Most parties in the industry decided that they would put the ACCC at the centre of the process.
That is the element that has failed, and that is the element that has been the concious choice of all the industry participants. If the telecommunications industry can only progress based on relying on decisions by a Government appointed regulator it has not advanced at all from being a single Government operated network provider.
Wednesday, March 04, 2009
More of the B-Grade Movie
I didn't get to hear much of the Senate NBN select committee today, so this post is about yesterday afternoon mostly. But I do note that the Department of Broadband Communications and the Digital Economy seemed to be being thanked almost as soon as they had started. Possibly a record short appearance for the Department. Will Mr Lyons get a gold star?
First an item I forgot to correct yesterday. In evidence one witness claimed there was only an access regime to services in telecommunications, not infrastructure or facilities. he statement is incorrect. There is only access to services under Part XIC of the Trade Practices Act, but there is a facilities access regime in the Telecommunications Act. This covers towers and ducts, for example. Hopefully someone will make sure the Committee understands this.
Yesterday afternoon's big show was Telstra. Senator Minchin I think was hoping that Telstra would be howling about its exclusion from the process but Telstra's David Quilty effectively said "We've moved on." However, Telstra quite subtly provided a submission to he Committee - tabling it at the meeting. They have since posted it on NWAT.
This is an interesting move because it is now not protected with the Parliamentary priviledge it would have attracted if lodged in the normal way. But the manner they chose meant it couldn't be seen by others before they appeared.
The piece tries to flag the critical issues as a grouping of risks. The first are "build risks" that are all alternatives of the problem to be faced when someone else is trying to upgrade Telstra's network. In case Telstra hasn't noticed, just as with the network information for the tender process, the Commonwealth has the power to requisition any information it wants from Telstra. The second category is "financial risks", which are all just variants of Telstra's assertion that only a firm earning economic rents like them could be trusted to build a new network. (Telstra is cute here, they are one of Australia's biggest firms but they themselves have NEVER engaged in an equity fund raising. The proceeds of their floats all went to the Government as vendor. The next two groups of "operational risks" and "technology risks" all look to me to be the kinds of risks Telstra would be relying on its equipment vendor to mitigate.
The "security risks" are the biggies. Telstra asks what protections are proposed to make sure network details don't wind up in criminal hands. Telecom old-timers would remember the days when technicians were regularly caught aiding SP bookmakers and having management cover up the issue - until a late 70s enquiry insisted that all matters of potentially illegal activity had to be referred to police. Thy go on to concern themselves with something they call an "end-to-end interception requirement" which has no basis in law - the agencies don't need interception on the copper they just need the traffic to be interceptable by the appropriate party. Telstra asks "Does the proposed builder intend to use a set of vendors that can convince the relevant Australian security and law enforcement agencies and those of our close allies that their equipment offers world class levels of security and is in no way compromised by any links with foreign entities?"
Has anyone noticed that the only act of state sponsored terrorism in the antipodes was the French (you know, Alcatel) sinking the Rainbow Warrior? The "competition and regulatory risks" is a confusing mish-mash of suggestions that the cost of separating Telstra is made hard if done at the same time as the NBN build. What part of "you get separated node by node" doesn't Telstra understand? Under "coverage risks" there are some good questions about spectrum availability for any wireless component - but we know the Austar 2.3GHz was on offer to OPEL and the $4.7B will buy a bit. I won't comment on the "economic risks" because a relative may have contributed to their preparation.
Presumably plenty of material here - but their strategy may have backfired because these would all have been interesting questions for the committee to have asked Department officials today.
Meanwhile yesterday Austar seemed to really miss the opportunity to press home the point about OPEL that Senators Nash and Minchin had been pursuing. Austar rightly pointed out that OPEL provided neither the coverage nor the speed required from the NBN, but it did demonstrate the benefit of a tender that resulted in extra backhaul capacity being constructed and priced at a subsidised rate, and that significantly more of the footprint should be addressed by wireless than currently allowed for. Wireless can bring forward the benefits of the NBN claimed for the deployment of Broadband by Telstra quoting Access Economics.
The Government has an option to go part way here with the Axia bid. This bid also supports some key recommendations of the Regional Telecommunications Review about access to backhaul. Art Price seemed to do a good job of explaining that today, but I'm not sure the committee fully understands the model.
On a related matter today Telstra is reporting that there has been a significant wind back in regulation in the UK, in particular over the separation model. I'm not all that surprised - but I've never been a fan of the model deployed in the UK (by BT choice) and NZ (by Government fiat) for operational separation.
Let's recap. The regulator OFCOM kept threatening he would refer BT under the Enterprises Act to the competition regulator, that reference could have resulted in divestiture orders. BT offered the functional separation model which was acepted by the regulator. Functional separation suffers from a major flaw, the investment incentives of the business unit are no longer aligned and ultimately the single board to which they both report can't reconcile the investment decisions. In short, an effectively functionally separated firm would voluntarily structurally separate.
I've asked BT reps a number of times why they haven't fully structurally separated and received three different answers.
1. There are benefits from the retail and wholesale/networks arms being in common ownership. Well, if there are any such benefits the dealing isn't arms length and the downstream firms still aren't getting to compete fairly.
2. By being functionally separated rather than structurally separated the regulator gets more visibility. This is an argument that reveals the objective of a captured regulator. It begs the question, why under separation should the regulator need visibility.
3. By being functionally separated we can "fine tune" the dividing line, because its hard to decide where it should be drawn. In other words, BT expects eventually to be able to redraw the line out of existence.
BTs separation has been a carefully worked fraud that has been ham-fistedly instituted in NZ. What I describe above as the "node-by-node" separation of Telstra's copper into an access network owned by a new operator, together with a totally different entity owning a subsidised (price averaged) backhaul network is the way to provide a truly new market structure that will facilitate dynamism in the market. (Dynamism is the simultaneous operation of competition and investment).
First an item I forgot to correct yesterday. In evidence one witness claimed there was only an access regime to services in telecommunications, not infrastructure or facilities. he statement is incorrect. There is only access to services under Part XIC of the Trade Practices Act, but there is a facilities access regime in the Telecommunications Act. This covers towers and ducts, for example. Hopefully someone will make sure the Committee understands this.
Yesterday afternoon's big show was Telstra. Senator Minchin I think was hoping that Telstra would be howling about its exclusion from the process but Telstra's David Quilty effectively said "We've moved on." However, Telstra quite subtly provided a submission to he Committee - tabling it at the meeting. They have since posted it on NWAT.
This is an interesting move because it is now not protected with the Parliamentary priviledge it would have attracted if lodged in the normal way. But the manner they chose meant it couldn't be seen by others before they appeared.
The piece tries to flag the critical issues as a grouping of risks. The first are "build risks" that are all alternatives of the problem to be faced when someone else is trying to upgrade Telstra's network. In case Telstra hasn't noticed, just as with the network information for the tender process, the Commonwealth has the power to requisition any information it wants from Telstra. The second category is "financial risks", which are all just variants of Telstra's assertion that only a firm earning economic rents like them could be trusted to build a new network. (Telstra is cute here, they are one of Australia's biggest firms but they themselves have NEVER engaged in an equity fund raising. The proceeds of their floats all went to the Government as vendor. The next two groups of "operational risks" and "technology risks" all look to me to be the kinds of risks Telstra would be relying on its equipment vendor to mitigate.
The "security risks" are the biggies. Telstra asks what protections are proposed to make sure network details don't wind up in criminal hands. Telecom old-timers would remember the days when technicians were regularly caught aiding SP bookmakers and having management cover up the issue - until a late 70s enquiry insisted that all matters of potentially illegal activity had to be referred to police. Thy go on to concern themselves with something they call an "end-to-end interception requirement" which has no basis in law - the agencies don't need interception on the copper they just need the traffic to be interceptable by the appropriate party. Telstra asks "Does the proposed builder intend to use a set of vendors that can convince the relevant Australian security and law enforcement agencies and those of our close allies that their equipment offers world class levels of security and is in no way compromised by any links with foreign entities?"
Has anyone noticed that the only act of state sponsored terrorism in the antipodes was the French (you know, Alcatel) sinking the Rainbow Warrior? The "competition and regulatory risks" is a confusing mish-mash of suggestions that the cost of separating Telstra is made hard if done at the same time as the NBN build. What part of "you get separated node by node" doesn't Telstra understand? Under "coverage risks" there are some good questions about spectrum availability for any wireless component - but we know the Austar 2.3GHz was on offer to OPEL and the $4.7B will buy a bit. I won't comment on the "economic risks" because a relative may have contributed to their preparation.
Presumably plenty of material here - but their strategy may have backfired because these would all have been interesting questions for the committee to have asked Department officials today.
Meanwhile yesterday Austar seemed to really miss the opportunity to press home the point about OPEL that Senators Nash and Minchin had been pursuing. Austar rightly pointed out that OPEL provided neither the coverage nor the speed required from the NBN, but it did demonstrate the benefit of a tender that resulted in extra backhaul capacity being constructed and priced at a subsidised rate, and that significantly more of the footprint should be addressed by wireless than currently allowed for. Wireless can bring forward the benefits of the NBN claimed for the deployment of Broadband by Telstra quoting Access Economics.
The Government has an option to go part way here with the Axia bid. This bid also supports some key recommendations of the Regional Telecommunications Review about access to backhaul. Art Price seemed to do a good job of explaining that today, but I'm not sure the committee fully understands the model.
On a related matter today Telstra is reporting that there has been a significant wind back in regulation in the UK, in particular over the separation model. I'm not all that surprised - but I've never been a fan of the model deployed in the UK (by BT choice) and NZ (by Government fiat) for operational separation.
Let's recap. The regulator OFCOM kept threatening he would refer BT under the Enterprises Act to the competition regulator, that reference could have resulted in divestiture orders. BT offered the functional separation model which was acepted by the regulator. Functional separation suffers from a major flaw, the investment incentives of the business unit are no longer aligned and ultimately the single board to which they both report can't reconcile the investment decisions. In short, an effectively functionally separated firm would voluntarily structurally separate.
I've asked BT reps a number of times why they haven't fully structurally separated and received three different answers.
1. There are benefits from the retail and wholesale/networks arms being in common ownership. Well, if there are any such benefits the dealing isn't arms length and the downstream firms still aren't getting to compete fairly.
2. By being functionally separated rather than structurally separated the regulator gets more visibility. This is an argument that reveals the objective of a captured regulator. It begs the question, why under separation should the regulator need visibility.
3. By being functionally separated we can "fine tune" the dividing line, because its hard to decide where it should be drawn. In other words, BT expects eventually to be able to redraw the line out of existence.
BTs separation has been a carefully worked fraud that has been ham-fistedly instituted in NZ. What I describe above as the "node-by-node" separation of Telstra's copper into an access network owned by a new operator, together with a totally different entity owning a subsidised (price averaged) backhaul network is the way to provide a truly new market structure that will facilitate dynamism in the market. (Dynamism is the simultaneous operation of competition and investment).
Tuesday, March 03, 2009
Tales from the Crypt
I just spent the morning at the NBN Senate Select Committee hearing in Sydney. As one Senator put it to me in a break they had a feeling of deja vu.
In fact it felt more like the script of a horror movie, something starring zombies or other varieties of the undead, because this is a conversation where no point is ever won, and no idea is ever prohibited from resurfacing. Before we discuss today, let's just talk tactics. The coalition brought on this enquiry to try to embarass the Govt during the selection process. But it isn't making much progress. If the Government does resort to introducing legislation (see below) we have to wonder whether the coalition can credibly require yet another committee.
There are a few points that keep being raised that need to be buried. The first is whether the Government should have defioned the regulatory rules before calling the tender. It is an extraordinary call coming from the coalition Senators (though I note it was a National who sometimes are coalition in name only who pushed the issue). This was the the second wing of the coalition's policy in Government - they announced the Broadband Connect program and they announced a "tender" for the building of the NBN where proponents were to specify the regulatory requirements for the proponent to make its commercial investment. It was their way of choosing between Telstra and the G9. Hopefully the Senators will have the brains not to pursue this, after all they can ask the Shadow Finance Minister (Helen Coonan), the member for Mayo (Jamie Briggs) and their Leader's Deputy Chief of Staff (Peta Credlin) to remind them of tht half of their policy.
They also like to go on about the cancellation of the OPEL contract, as does Minchin on the exclusion of Telstra from the NBN bid on a "technicality". At one level this is simply about law, should people be funded by Government if they don't meet their contractual (or tender) requirements. To be fair to Senator Minchin he does claim that the Government has provided insufficient detail in public about the cancellation, and that there has been no proof. In their latest submission Optus goes to some length to explain how the disagreement between them and the Government came about, and also to be fair they did try to deflect questions about it at the committee.
However, they did briefly slip indicate the cancellation was "subject to legal proceedings" before correcting themselves that they were still merely assessing whether it should be. It is hard to escape the feeling that Optus' decision on whether to commence proceedings or not will depend on the outcome of the NBN tender.
It is also to be hoped that the Senators will think to ask these questions of the Department, as I believe there is every chance the Departmentknew OPEL could not meet the conditions precedent when the contract was awarded.
There is still a lot of nonsense sprouted about the potentrial for "over-build" and what happens to Telstra's network if someone other than Telstra wins. As long as we re talking about a hybrid fibre-twisted copper FttN solution, the only efficient way to do this is to cut all the copper over at a "pillar" (or node) at once. There is no part of Telstra's network that is still then useful. Senator McDonald suggested Telstra would be "rightly aggrieved" at this acquisition of property. Dr Kelso suggested that Telstra could start legal actions lasting 5 to 10 years.
Thankfully Optus reminded the committee of Telstra's home goal on the access regime, but he didn't go far enough. There were two parts to that decision. The first was that all Telstra's assets had at all times been covered by an access regime and hence they never had an unencumbered property right. Just how far this would extend to mandating access to all the coppr is not clear.
But the second part was that the clause in the Act to preserve it after a constitutional challenge was found to stand, that is, if an action by the Commonwealth amounts to acquisition of property the law still stands and the Commonwealth will pay compensation. The beauty of this is that while Telstra might be able to bring legal actions, they would not be able to secure injunctions to stop deployment.
How much compensation would depend on a definition of value of the asset. Telecommunications companies only operate their networks by grace of the legislative permission to do so, and subject to legislative and licence conditions. These include significant benefits including exemptions from State planning laws. The Government can do much to impare Telstra's assets before acquisition. Specifically they could remove the planning exemption for anything other than structurally separated assets. They could change the USO funding scheme to apply only to structurally separated assets. They could increase the regulatory reporting requirements under operational separation.
The endpoint will be interesting. Senator Minchin asked Optus how long it would take to start building given the need to negotiate and pass legislation. Optus missed the opportunity to reply "that depends on whether you try to delay high speed broadband in the Senate".
In fact it felt more like the script of a horror movie, something starring zombies or other varieties of the undead, because this is a conversation where no point is ever won, and no idea is ever prohibited from resurfacing. Before we discuss today, let's just talk tactics. The coalition brought on this enquiry to try to embarass the Govt during the selection process. But it isn't making much progress. If the Government does resort to introducing legislation (see below) we have to wonder whether the coalition can credibly require yet another committee.
There are a few points that keep being raised that need to be buried. The first is whether the Government should have defioned the regulatory rules before calling the tender. It is an extraordinary call coming from the coalition Senators (though I note it was a National who sometimes are coalition in name only who pushed the issue). This was the the second wing of the coalition's policy in Government - they announced the Broadband Connect program and they announced a "tender" for the building of the NBN where proponents were to specify the regulatory requirements for the proponent to make its commercial investment. It was their way of choosing between Telstra and the G9. Hopefully the Senators will have the brains not to pursue this, after all they can ask the Shadow Finance Minister (Helen Coonan), the member for Mayo (Jamie Briggs) and their Leader's Deputy Chief of Staff (Peta Credlin) to remind them of tht half of their policy.
They also like to go on about the cancellation of the OPEL contract, as does Minchin on the exclusion of Telstra from the NBN bid on a "technicality". At one level this is simply about law, should people be funded by Government if they don't meet their contractual (or tender) requirements. To be fair to Senator Minchin he does claim that the Government has provided insufficient detail in public about the cancellation, and that there has been no proof. In their latest submission Optus goes to some length to explain how the disagreement between them and the Government came about, and also to be fair they did try to deflect questions about it at the committee.
However, they did briefly slip indicate the cancellation was "subject to legal proceedings" before correcting themselves that they were still merely assessing whether it should be. It is hard to escape the feeling that Optus' decision on whether to commence proceedings or not will depend on the outcome of the NBN tender.
It is also to be hoped that the Senators will think to ask these questions of the Department, as I believe there is every chance the Departmentknew OPEL could not meet the conditions precedent when the contract was awarded.
There is still a lot of nonsense sprouted about the potentrial for "over-build" and what happens to Telstra's network if someone other than Telstra wins. As long as we re talking about a hybrid fibre-twisted copper FttN solution, the only efficient way to do this is to cut all the copper over at a "pillar" (or node) at once. There is no part of Telstra's network that is still then useful. Senator McDonald suggested Telstra would be "rightly aggrieved" at this acquisition of property. Dr Kelso suggested that Telstra could start legal actions lasting 5 to 10 years.
Thankfully Optus reminded the committee of Telstra's home goal on the access regime, but he didn't go far enough. There were two parts to that decision. The first was that all Telstra's assets had at all times been covered by an access regime and hence they never had an unencumbered property right. Just how far this would extend to mandating access to all the coppr is not clear.
But the second part was that the clause in the Act to preserve it after a constitutional challenge was found to stand, that is, if an action by the Commonwealth amounts to acquisition of property the law still stands and the Commonwealth will pay compensation. The beauty of this is that while Telstra might be able to bring legal actions, they would not be able to secure injunctions to stop deployment.
How much compensation would depend on a definition of value of the asset. Telecommunications companies only operate their networks by grace of the legislative permission to do so, and subject to legislative and licence conditions. These include significant benefits including exemptions from State planning laws. The Government can do much to impare Telstra's assets before acquisition. Specifically they could remove the planning exemption for anything other than structurally separated assets. They could change the USO funding scheme to apply only to structurally separated assets. They could increase the regulatory reporting requirements under operational separation.
The endpoint will be interesting. Senator Minchin asked Optus how long it would take to start building given the need to negotiate and pass legislation. Optus missed the opportunity to reply "that depends on whether you try to delay high speed broadband in the Senate".
Monday, March 02, 2009
Religion
Interesting piece today about submissions to the Australian Human Rights Commission on freedom of religion.
It appears that groups that could benefit are arguing against the laws on the basis that they might result in restrictions on the tax advantages received by a number of religions. I have just finished reading Michael Bachelard's Behind the Exclusive Brethren, which is a fascinating read about how one particular sect has pursued its own agenda, and has staked out a moral code at odds with mainstream Australia.
I think sects like theirs need to be afraid of decent law on freedom of religion, and its counterpoint, the separation of church and state. I have some views that I've shared previously on this site, but my simple summary of the "rules" that need to apply in identifying a religion and what its associated freedoms entail is as follows;
1. The religion itself must preach religious tolerance. It may be a "prosletysing" religion, but it must not object to the practice of any other religion.
2. It must be an open religion. Any person seeking to join the religion should be feree to do so so long as they profess the faith expressed by the religion.
3. The religion's financial records and accounts must be kept in accordance with accounting standards and be as transparent as a secular organisation of the same size.
4. The religion must promote compliance with the law, even if that law authorises something the religion finds abhorant (or prohibits an action the religion wishes to pursue).
Once these are accepted I don't have too much difficulty with existing tax exemptions or funding for social activities (education, health, advice lines) by such groups. But these standards need to be accepted and Government needs to arm itself with a mechanism (presumably through the courts) to determine that an association does not meet the requirements of a "religious organisation".
Sounds easy!
It appears that groups that could benefit are arguing against the laws on the basis that they might result in restrictions on the tax advantages received by a number of religions. I have just finished reading Michael Bachelard's Behind the Exclusive Brethren, which is a fascinating read about how one particular sect has pursued its own agenda, and has staked out a moral code at odds with mainstream Australia.
I think sects like theirs need to be afraid of decent law on freedom of religion, and its counterpoint, the separation of church and state. I have some views that I've shared previously on this site, but my simple summary of the "rules" that need to apply in identifying a religion and what its associated freedoms entail is as follows;
1. The religion itself must preach religious tolerance. It may be a "prosletysing" religion, but it must not object to the practice of any other religion.
2. It must be an open religion. Any person seeking to join the religion should be feree to do so so long as they profess the faith expressed by the religion.
3. The religion's financial records and accounts must be kept in accordance with accounting standards and be as transparent as a secular organisation of the same size.
4. The religion must promote compliance with the law, even if that law authorises something the religion finds abhorant (or prohibits an action the religion wishes to pursue).
Once these are accepted I don't have too much difficulty with existing tax exemptions or funding for social activities (education, health, advice lines) by such groups. But these standards need to be accepted and Government needs to arm itself with a mechanism (presumably through the courts) to determine that an association does not meet the requirements of a "religious organisation".
Sounds easy!
On Cartels
The Senate Economics Committee has reported on the Government's cartel criminalisation Bill, recommending the adoption of the Bill.
I did intend to make a submission to the committee but I found I couldn't easily find the evidence to make my case. My underlying thesis is that the focus on criminalisation of cartels has come from those sectors of the business, banking, finance and legal communities whose interests lie in increased industry concentration through merger and acquisition activity.
This group of people run the line that it is not industry consolidation per se that causes competition problems, just that the concentration facilitates collusion. So, they argue, what we really need are tougher anti-caretl laws.
The realities are that cartel conduct is exceedingly hard to prove, convictions are usually won more by admission than prosecution (though in the Pratt case the ACCC continued to lay a perjury charge). Even with phone records and the other amendments it is unlikely to be frequently proven, and certainly will not capture any of the cases of tacit collusion that are facilitated by concentrated markets.
Far more useful would be amendments to the TPA to facilitate divestiture orders, and to create ex ante access requirements in markets other than those covered by Parts IIIA and XIC. Also more useful would be a misuse of market power law that really did restrict the use of market power.
Far more distressing is the Committee's recognition that the boundary between the civil and the criminal offence is poorly drawn, and its recommendation that the clarification of that boundary should be left to the ACCC. In reality the boundary will be what the court determines, if the ACCC ever brings a case that tests the boundary. Given the ACCC's reluctance to ever really test its powers we can expect an incredibly cautious approach to the criminal offence provisions.
Perhaps Nick Xenophon is right in his minority report that it is time for a complete review of the TPA. Pity that the great TPA reformer Andrew Murray is not still there to join him in the call.
I did intend to make a submission to the committee but I found I couldn't easily find the evidence to make my case. My underlying thesis is that the focus on criminalisation of cartels has come from those sectors of the business, banking, finance and legal communities whose interests lie in increased industry concentration through merger and acquisition activity.
This group of people run the line that it is not industry consolidation per se that causes competition problems, just that the concentration facilitates collusion. So, they argue, what we really need are tougher anti-caretl laws.
The realities are that cartel conduct is exceedingly hard to prove, convictions are usually won more by admission than prosecution (though in the Pratt case the ACCC continued to lay a perjury charge). Even with phone records and the other amendments it is unlikely to be frequently proven, and certainly will not capture any of the cases of tacit collusion that are facilitated by concentrated markets.
Far more useful would be amendments to the TPA to facilitate divestiture orders, and to create ex ante access requirements in markets other than those covered by Parts IIIA and XIC. Also more useful would be a misuse of market power law that really did restrict the use of market power.
Far more distressing is the Committee's recognition that the boundary between the civil and the criminal offence is poorly drawn, and its recommendation that the clarification of that boundary should be left to the ACCC. In reality the boundary will be what the court determines, if the ACCC ever brings a case that tests the boundary. Given the ACCC's reluctance to ever really test its powers we can expect an incredibly cautious approach to the criminal offence provisions.
Perhaps Nick Xenophon is right in his minority report that it is time for a complete review of the TPA. Pity that the great TPA reformer Andrew Murray is not still there to join him in the call.
Home Again
I mentioned that I was chairing the NZ commerce Commission NGN conference Broadband at the crossroads (sic). Some of the presentations and video of the event is now available.
A tremendous line up of speakers, including the four "lead" international guests of Tim Cowen, Benoit Felton*, Scott Marcus and Kip Meek. As well we were joined by Jos Huigens from the Netherlands by video link, as well as a host of great NZ and Australian speakers.
The first observation to make is that the Next Generation Networks still present more challenges than they resolve. The interesting parts that come from each of the above is as follows.
Tim highlighted how important concepts of copyright were to the future of new services and how inadequate the concept built around solid artefacts (books) was to new media. Kip reflected on the importance of industry participation, while Benoit highlighted the opportunity that FTTH rather than FTTN presented. Scott was perhaps the most challenging flagging the need to think differently about IP interconnection, though he said NZ was so far doing it well.
The contrast between this and anything happening in Australia was huge. I wrote in The Exchange this week about the need for a new forum in Australia to discuss issues as an industry. It is interesting to note that NZ's Telecommunications Carriers Forum suffers from the same funding problem as the Communications Alliance. The Broadband Stakeholders Group in the UK receives funding from Government and thus is not beholden to its major shareholders. It is a model worthy of further consideration.**
* I have added Benoit's blog to my blog roll.
** The legislative change that resulted in Comms Alliance being able to be funded by ACMA for consumer codes sprung from my first floating of the idea. My intention had been direct untied funding, effectively out of carrier licence fees, so that the imbalance on direct contributions could be rectified. But as always it got screwed up by the processes.
A tremendous line up of speakers, including the four "lead" international guests of Tim Cowen, Benoit Felton*, Scott Marcus and Kip Meek. As well we were joined by Jos Huigens from the Netherlands by video link, as well as a host of great NZ and Australian speakers.
The first observation to make is that the Next Generation Networks still present more challenges than they resolve. The interesting parts that come from each of the above is as follows.
Tim highlighted how important concepts of copyright were to the future of new services and how inadequate the concept built around solid artefacts (books) was to new media. Kip reflected on the importance of industry participation, while Benoit highlighted the opportunity that FTTH rather than FTTN presented. Scott was perhaps the most challenging flagging the need to think differently about IP interconnection, though he said NZ was so far doing it well.
The contrast between this and anything happening in Australia was huge. I wrote in The Exchange this week about the need for a new forum in Australia to discuss issues as an industry. It is interesting to note that NZ's Telecommunications Carriers Forum suffers from the same funding problem as the Communications Alliance. The Broadband Stakeholders Group in the UK receives funding from Government and thus is not beholden to its major shareholders. It is a model worthy of further consideration.**
* I have added Benoit's blog to my blog roll.
** The legislative change that resulted in Comms Alliance being able to be funded by ACMA for consumer codes sprung from my first floating of the idea. My intention had been direct untied funding, effectively out of carrier licence fees, so that the imbalance on direct contributions could be rectified. But as always it got screwed up by the processes.
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