Author: Chris Berg

A Capital Idea: Move Them Out To Move Us On

 

Last week, when Canberra was named by the Institute of Public Affairs as one of Australia’s 13 biggest mistakes, the chief minister of the Australian Capital Territory complained that this was another predictable exercise in Canberra-bashing. Presumably, because we also listed the introduction of cane toads into this country as a mistake, we can expect letters from Friends of Cane Toads. But it is legitimate to examine the mistakes Australia has made in the past to avoid making similar ones in the future.

Australians are a remarkably creative, diverse and entrepreneurial people. Politics is slow, backwards-looking and uniform.

Inspired by misguided ideologies and without full understanding of the unintended consequences, it is very easy for governments to make mistakes. Unfortunately, since Federation, this has happened too often.

Australia entered the 20th century with the highest living standards in the world. By the 1970s, we couldn’t even crack the top dozen.

The media provide a good example of government failure. We now live in a world of iPods, YouTube and MySpace. Never has there been so much information and entertainment readily available. But if a service such as YouTube required government-managed airwaves to operate, rather than the free-for-all internet, there is no chance it would have been given a license in Australia.

Since taking over control of the radio-waves with the 1905 Wireless Telegraphy Act, successive Australian governments have needlessly held back the development of wireless telegraphy, AM radio, television, FM radio, subscription and now digital television. Most governments have been open about the reason – to protect the financial viability of existing media companies. Never mind the consumers.

Patrick White’s 1972 Nobel Prize for Literature could not be considered anything but a success, and the government’s response was to inaugurate the Australia Council. But when expatriates such as Germaine Greer criticise Australian culture from afar, they fail to recognise that this too may be a result of government action. How much different would Charles Dickens’ novels have been if he had been living off a government grant?

The US, which has a famously low level of state support for the arts, has a strong, vibrant culture. American artists are forced to respond to the demands of their audience. The result has been a century of innovation and experimentation.

But our large arts bureaucracy, funded by government and beholden to committees rather than consumers, could easily be the cause of our “cultural cringe”. If the government left our creative artists to their own devices, without offering them protection from their fickle audience, perhaps we could finally relax our cringe.

Similarly, when parents decry their children’s reluctance to move out of home, it would be worth considering that they can’t afford to. The imposition of regressive urban planning restrictions by governments has artificially inflated the prices of homes, beginning with the Western Australian Town Planning and Development Act in 1928. These laws have shifted the decision-making powers about how to use land from the land’s owners into the new urban planning establishment. By restricting the supply of housing, prices naturally go up.

Conceivably, fewer of these mistakes would have been made if our politicians, bureaucrats and regulators had been closer to the people they were governing, rather than sequestered away in Canberra. The decision in 1908 to shift the engines of government to a rural area isolated decision-makers from the consequences of their decisions.

If we had left the capital in one of our major cities, some of the folly of Australian history could perhaps have been avoided.

Thankfully, steady reform since the 1970s has partly reversed some of the worst mistakes. But if Australia is currently under the grip of some sort of “neo-liberal orthodoxy”, as is so commonly argued, then the question is not how have advocates of the free market and small government suddenly gained power, but where were they during the first 90 years of our federal system?

If we’d had a strong, liberal free-trade party in Australia that embraced individualism and economic and social freedom, perhaps this would have not been the case. Instead we were stuck with two protectionist conservative parties unwilling to challenge the prevailing dogma.

The bi-partisan reform movement to reverse some of the mistakes of past governments is giving back Australians some measure of control over their own lives. Australians can be justly proud of our successes. Most of our failures have been the fault of governments.

Australia’s 13 biggest mistakes
1. The end of the Reid government (1905)
2. The Harvester Judgement (1907)
3. Wireless Telegraphy Act (1905)
4. The Montreal Olympics (1976)
5. The Uniform Tax cases (1942 and 1957)
6. WA Town Planning and Development Act (1928)
7. Immigration Restriction Act (1901)
8. The Labor Party split (1955)
9. Publication of John Stuart Mill’s On Liberty (1859)
10. The release of cane toads (1935)
11. Federal money for science blocks at non-government schools (1963)
12. Patrick White wins the Nobel Prize (1972)
13. Invention of Canberra (1908)
Source: Institute of Public Affairs

The Slippery Slope Towards Internet Censorship Continues

The Australian Government continued down the slippery slope towards internet censorship yesterday by introducing a bill to give the Australian Federal Police the power to nominate terrorism or crime related websites for filtering.

In The Australian Greens Senator Kerry Nettle expressed concerns that the Police Commissioner might use these new powers to call for Greenpeace’s website to be filtered – which really should raise more questions about the activities of Greenpeace than the value of the legislation.

Nevertheless, there is slightly less to this bill than it seems at first glance. The internet industry code currently governing online content already provides for filtering of pornographic and offensive content. But this filtering is voluntary, not mandatory.

At the moment, internet service providers who want to be designated “family friendly” by the Internet Industry Association have to offer their customers one of a range of approved PC or server side commercial filters. And these filters are periodically updated according to an Australian Communications and Media Authority black list. Yesterday’s bill would merely allow the AFP to add terrorism or crime related sites to that black list. But why would aspiring terrorists and criminals willingly install a family friendly filter onto their PC?

A lot rides on how the Internet Industry Association rewrites its codes of practise in the light of the government’s NetAlert scheme. Under NetAlert, all internet service providers will be compelled to offer consumers the choice between an unfiltered internet connection or a server-side filtered one.

Again, terrorists are unlikely to choose a filtered internet connection. The government’s new legislation only really makes sense if the unfiltered product is not going to be truly ‘unfiltered’. That the internet content bill was introduced quietly yesterday morning does not inspire confidence that the government plans to leave our internet connections alone. And it’s worth remembering that the Labor Party has for a long time promised mandatory server side filters if they win government.

Quite aside from the internet censorship issue, this bill highlights a disturbing regulatory trend – governments delegating the policing of the internet to the communications industry. Many of the measures canvassed by the inquiry into social networking sites would do just that. Even outside the high-technology sector, counterterrorism and anti money laundering regulation in the financial sector compels firms to police their own customers.

Particularly in the communications sector, these sorts of regulatory burdens can only add to costs for consumers.

Better To Be Alert Than NetAlarmed

The internet will kill your children, or something.

At least, that is the message of the Federal Government ads plastered on the side of every second tram trundling down Swanston Street.

The Government’s approach to internet safety has all the hyperbole and sensationalism of tabloid current affairs programs. This is not surprising. Scare campaigns about the dangers of chatting or stumbling upon nudity usually have little to do with children, and all to do with raising fear in parents. Parents vote.

NetAlert, the initiative that provides those free internet filters that were broken within 30 minutes by a year 10 student, will do little to stop children finding pornography online if they want to. And the mandatory internet filtering that the Government has announced will be expensive and mostly unworkable.

In a further step, last Thursday the Government announced an investigation into sex offenders and pedophiles on social networking sites such as MySpace and Facebook. But the policy options raised by the Government — such as segregating adults and children online, mandatory age verification, or requiring parental approval before signing up to sites — will be as ineffective as NetAlert. Bureaucratic obstacles are no defence against individuals determined to cause harm.

It is hard to avoid the conclusion that the Government’s internet policies are not much more than cynical vote-gathering. In the absence of any other ideas for the upcoming election, the Federal Government is asking voters to think of the children.

But what do the children themselves think about internet safety? The Department of Communications kicked an own goal last week when it released a study of the attitudes of parents and kids. Parents were concerned that the internet exposed children to pornography and was full of strangers and chat rooms. Children were more worried about pop-up ads, viruses and substandard internet speeds. Not surprisingly, few were concerned about pornography. Some expressed concerns about interacting with dangerous strangers.

The study did not provide any support for one of the bulwarks of the Government’s policy — the mandatory internet filter. It revealed instead that internet literacy was a more effective protection against any potential danger online.

Regulating MySpace and filtering the internet provide no substitute for education. Governments can have a role to play in educating about online safety; they set the school curriculum and most children attend public schools. The second way governments can approach child safety is through police work. After all, parents should be outraged not that pedophiles could be on MySpace, but that there are pedophiles at large.

Like any matters to do with children, parents have to take the bulk of the responsibility. The most effective approach to internet safety and obscenity is monitoring online activity. The best protection for children is the setting of boundaries.

Too much of the Federal Government’s internet policy is a distraction from these far more effective approaches.

A few months ago, many commentators assumed that the Federal Government had a rabbit to pull out of the hat before this election. Free internet filters and giving Kieran Perkins the title of “Parent Ambassador” are unfortunately more likely to make the Government look like bunnies.

Dealing With That $30,000 Phone Bill… Without Regulation

There is a “mounting dossier” of complaints to communications regulators concerning unexpectedly high mobile phone bills, reports the Australian Financial Review today.

It’s hard to be too sympathetic with somebody who couldn’t figure out they had spent nearly $30,000 in a single month – they must now have an extraordinary library of downloaded ring tones.

But this surge in complaints is partly due to technological convergence. As mobile phones increasingly provide the same sort of internet connection that consumers are used to at home, those consumers expect it to be just as accessibly priced.

Unexpectedly high bills were the subject of a high-profile Australian Communications Authority investigation in 2004. The services the ACA fingered as culprits less than three years ago, MMS and subscription services, are strikingly different from those now. In 2007, it is mobile data and download services on 3G handsets that are at fault.

The industry ombudsman says that complaints over high bills have increased thirty percent over the last year.

Mobile providers need to develop processes to deal with the high account activity that leads to these extraordinarily high bills. Neither the consumer nor the firm is helped by the sudden appearance of a multi-thousand dollar debt.

Firms offering home broadband services have dealt with the unexpectedly high bill problem before. Early plans punished consumers with high ‘excess’ data prices, but now most firms have structured their prices to ‘shape’ data to a lower speed once consumers reach a certain limit.

This is a model that the mobile industry may be able to adopt. Indeed, some major mobile carriers apply hard caps to a range of premium services.

Furthermore, in the United States, the iPhone / AT&T deal offers unlimited data plans, which may indicate that the price of mobile data is trending towards zero. Certainly, in Australia mobile data is now much cheaper than it was when the only technology available was GPRS on a standard GSM phone. And some Blackberry plans offer unlimited email data already.

Horror stories like those in the AFR today tend to encourage regulatory responses. In this case, legislators should be wary of knee-jerk reactions – mandating specific pricing models for high data usage could raise prices for consumers across the board.

Instead, the phenomenon of unexpectedly high mobile bills simply illustrates how the communications industry needs to adjust their business models to changes in technology and consumer demand.

Society Rhetoric Just A Pulp Fiction

In politics, words are designed to obscure. For instance, Kevin Rudd has been telling business groups all week that it is Labor’s job to govern for “society”, not “vested interests”. John Howard, too, argues that his government represents Australian society, not the sectional interests of union thugs portrayed so stereotypically in anti-Labor ads.

Each party claims to represent society against overpaid and overdressed CEOs or overpaid and underdressed union apparatchiks. Whatever “society” is, it must be delighted — no matter who wins the election, it has a friend.

So it’s not surprising that Margaret Thatcher’s declaration in a 1987 interview with the British weekly Women’s Own that “there is no such thing as society” is considered the very epitome of ideological heartlessness.

Of course, her remark is more often than not taken out of context — the Iron Lady was targeting people who routinely place the blame for their misfortunes on others — but at the same time the statement can stand by itself.

Society is so large and so vague a concept that it is meaningless. There are individual men and women, Thatcher went on to argue, and there are families. She could have added friends, and she probably should have added communities — but Thatcher was essentially right. Society is a rhetorical fiction.

No political leader could ever hope to understand, let alone represent, the enormous range of wants and needs of everybody in a country of 21 million people. Individuals are just too diverse to be pressed into a great big lumpen ball of “society”. Furthermore, the boundaries of society are unclear. Does society stop at the water’s edge? Does society stop when we go to work? Is it society, or is it the government that compels us to pay tax? (It sure feels like government.)

The fiction of society also supports some remarkably poor public policy. For example, federal Immigration Minister Kevin Andrews has argued that the new citizenship test is designed to ensure Australia has a cohesive society by formally codifying some Australian values.

The word “value” is just as fraught as the word “society” — 100 philosophers locked in a room wouldn’t be able to decide what it means. Nevertheless, the Federal Government is convinced that as long as potential citizens can identify Sir Edmund Barton in a multiple choice list, Australia’s values will be maintained.

When we try to figure out what might be the shared values of our society, we usually end up repeating bad jokes from Crocodile Dundee. Instead, we should recognise that individuals can have values, and communities can have values, but insisting that everybody in the country recognises our Judaeo-Christian heritage won’t do much for anybody.

It would be better to drop the illusion of society and instead view Australia as a collection of varied and overlapping communities, which are voluntarily entered into and held together by genuinely common interests. These communities can pivot around schools, workplaces and football clubs, and economic, social or cultural interests.

And governments don’t have the burden of encouraging community. Indeed, a community imposed from the top down is not a community at all.

Governments do have a role in removing the impediments to community activity, but dressing up public policy with vacuous rhetoric does nothing more than obscure the importance of genuine community.

Cracking Coonan’s Filter And Other Tech Wrecks

For the second time in recent months, Communications Minister Helen Coonan has found herself in the awkward position of trying to defend the merits of specific technologies.

Coonan argued that the government had anticipated that the porn filter announced by the Prime Minister last week would be cracked, eventually but must have been shocked by how quickly it was. On Friday, a year ten student found a workaround in thirty minutes, and defeated the subsequent update in forty more. Nevertheless, the government stands by the software it chose.

Similarly, when the Minister announced that the Optus-Elders consortium had won nearly a billion dollars to provide regional broadband, she was forced to defend the WiMAX technology against a barrage of criticism.

WiMAX is a high-quality technology but its reputation has suffered from some outrageous claims by its proponents. Early WiMAX advocates breathlessly claimed ranges of up to 70 kilometres. The government claims a range of 25 kilometres – even this is hopelessly optimistic.

Real life experience suggests that the technology has a much more modest range of 5-10 kilometres, in good conditions. And only on spectrum that the Optus-Elders network doesn’t currently have access to.

This new role – the government as tech expert – is becoming more and more prominent. Consumers are now quick to learn whether specific technologies or services meet the government’s seal of approval.

For instance, Telstra’s Next G service is, apparently, not satisfactory – Helen Coonan has received “hundreds of complaints”.

The Minister has also determined that a recent Telstra upgrade of its Hybrid Fibre Coaxial cable network is better than fibre-to-the-node technology, which will be news for those in the industry who have spent the last two years debating the appropriate regulatory framework to encourage firms to invest in fiberoptic broadband network.

Sometimes these statements are mere rhetoric flourishes, indicative only of a government struggling to navigate the complex interactions between politics and high-technology. But many in the industry are frustrated with the Communications Minister’s self-appointed role as technology propagandist and critic.

The government, when pressed, insists that it remains strictly “technology neutral” when it writes public policy. Unfortunately, the reality is much different.

In the course of the long-running dispute with Telstra, the government has largely abandoned allowing the market to decide the most suitable technologies. Instead, it has readopted the characteristic winner picking strategies which have long discredited national industry policies.

Splitting Telstra Is Not The Right Move

Last week, the US Federal Communications Commission abandoned its decade-long experiment with forced access sharing. Under this process the four so-called “baby bell” phone companies were required to open their phone lines to competing broadband retailers, rather like Telstra’s ADSL must be opened to its rivals.

As the former chief executive of US West, the baby bell that served the US Midwest, Sol Trujillo is intimately aware of the harmful effects that forced access policies have on telecommunications services. In the name of competition, access requirements also disingenuously known as unbundling make an entire industry subservient to regulators, rather than the market and consumers.

Telstra’s last attempt to change prices for high-speed internet, involving the introduction of the entry level $30 per month price early last year, was subject to vigorous action by the Australian Competition and Consumer Commission and Telstra’s retail rivals seeking to have the price increased.

This was punishing the customer to preserve the competitors and was just as odious as the policies that US regulators have unanimously decided are harmful to true telecommunications competition.

Telstra’s decision last year to lower the cost of home broadband should have been welcomed around the country. Instead, a pricing arrangement which resulted in a massive surge in ADSL uptake was greeted with threats of a multimillion-dollar fine and a brutal series of condemnations in the press.

Telstra’s basic broadband pricing has not changed in 1 1/2 years, probably as the result of lessons learnt from last year’s ugly fight. Such stagnant pricing in such a dynamic sector is not the sign of healthy competition.

The most harmful effect of forced access regulation is on infrastructure. The telecommunications market does not have the same stability as electricity or water; the steady progression of new communication technologies requires significant infrastructure investments to meet consumer demands.

It is clear that allowing competitors to leech off Telstra’s copper wire network at a nominal rate that ensures their profitability, means that there are poor incentives to invest in newer, more advanced infrastructure.

To argue that the capital required to build such a network is so large that no company would possibly do so is fallacious. One need only look at the sudden explosion in aviation competition with the advent of Virgin Airlines to recognise this fact.

In telecommunications we can be confident that this will emerge in the US now that price shackling has been abandoned. Not only do the existing regulations dissuade young competitors from developing new services, but they give Telstra a significant disincentive to upgrade lines. This point was made clear in a Senate committee earlier this year in a discussion on comparable broadband speed.

Telstra’s reluctance to roll out fibre optic cable to the home a technology which will rocket broadband speeds to among the best in the world is based not upon a lack of desire to do so, but a fear that the ACCC will force the company to open its lines at a rate which could make the roll-out a poor investment.

This is the regulatory environment Trujillo faced in the US, and this is the one he faces in Australia right now. However the recent developments here have not followed the positive developments in the America.

While recent Australian debate has focused on the National’s rent-seeking demands for future-proofing, it is the operational separation of Telstra into a wholesale and retail division which threatens to be the legacy of the coalition’s compromise.

If it goes through as planned, separation will lock in the regressive forced access regulation. Telstra Wholesale will be no more than a province of the ACCC empire controlled not by consumer demand but by an ACCC managed cartel of parasitic competitors trying to suck concessions from the one provider of significant communications capital that the country has.

The timing of the US decision is fortuitous for the federal government and those who will draw up the new arrangements for the final sale of Telstra.

We can look to the US, and their momentous decision to end this regulatory arrangement, for ideas on how to progress.

Broadband Projects An Embarrassing, Expensive Failure

Perhaps John Howard is right – State Governments are stupid. When NSW Premier Morris Iemma announced its ambitious program to blanket Sydney with WiFi coverage, providing it for free to consumers, he explicitly referred to a San Franciscan project as one to emulate.

But it is becoming increasingly apparent that the Californian project is imploding. US internet provider EarthLink may pull out of San Francisco’s municipal WiFi project. Australian governments should take note – local politicians are not always the best investors in communications technology.

After the ACCC had torpedoed Telstra’s proposal to build a Fibre-to-the-node network late last year — but before the major federal parties had announced their intentions to simply pay for the high-speed networks themselves — State governments one by one proposed their own solutions to the broadband controversy.

Leading the charge, Peter Beattie proposed that a private firm finance, build and operate a fibre-to-the-home network in Brisbane, but this was little more than a wishful press release.

Other states drew on overseas broadband proposals. Western Australia’s $1 billion fibre proposal was modelled on Alberta’s SuperNet. By all accounts, the Canadian network has been a relative success, but both SuperNet and the WA plan focus on building network backbone to essential services rather than piping internet direct to consumers.

Certainly, there are a wide range of international comparisons to call upon. Particularly in the United States, local governments are taking it upon themselves to get into the broadband business, with or without private support. But the experience has been rocky.

Local WiFi projects are often underutilised, underperforming, and expensive. Local councils may assume that free broadband would be popular, but one citywide project in Orlando, Florida was shut down in 2005 when the city realised that only 27 people were using the service per day.

Uptake rates have been more positive in other cities, but are in the range of one to two percent of the population, comparing poorly with the forecasted demand of between 15 and 30 percent.

The most high-profile network – and one which Iemma praised when announcing the Sydney plan – has also been the biggest debacle. San Francisco’s joint venture with EarthLink and Google is no closer to deployment than when it was announced in 2005. Indeed, the project’s failure was abundantly clear at the time when the NSW government was examining it.

The Google-EarthLink plan has been derailed by political theatre and contractual disputes. And even if EarthLink doesn’t pull out, the network speeds offered will be a paltry 300kbps – a speed which has been widely derided in Australia as ‘fraudband’. Contrast this with the 60 mbps nationwide fibre-to-the-home network that Verizon is investing in at a cost of US$18 billion.

It is tempting for politicians to offer things to their constituents for free, especially something as popular as broadband. But local government broadband projects are proving to be an embarrassing, expensive failure.

The Value Of Secrets To Pollies And Journos

In 1870, the editor of the Chicago Times got his job description down nicely: “It is a newspaper’s duty to print the news, and raise hell.”

So it is hard to sympathise with Peter Costello’s claims that his now famous dinner was off the record. After all, the demand for salacious gossip about senior politicians is almost infinite. And for journalists, the market for information is highly competitive.

When these combine, it must be tough for journalists to resist disclosing juicy political confessions. The potential personal benefit for the reporter and commercial benefit for their employer is enormous. And nobody wants to be the one who sat on a big story while their competitor makes their reputations disclosing it.

Such briefings with seemingly sympathetic journalists are common enough when tilling the ground for political change. By going public with the details of the dinner, some may claim that damage has been done to the sacred reporter-politician relationship. And the journalists involved will struggle to get invited to dinner with the next aspirational treasurer.

However, whatever country club mentality remains in the relationship between these two opposed professions is bound to erode away over the course of the next few years.

The news media has been highly competitive since the invention of the daily newspaper nearly three hundred years ago. But the even greater competition brought about from recent technological change has exponentially increased the value of a scoop.

Outlets like Crikey explicitly market themselves as purveyors of inside gossip and rumours – when Crikey readers are offered “the inside track”, it is in contrast to what is seen as an overly conservative traditional press corp.

In the United States, bloggers who self-identify as online journalists are routinely granted the legitimacy of press passes and interviews. With none of the institutional and reputational support that comes with a masthead, these writers can only sell themselves on original content. For this reason, some US bloggers are becoming formidably competitive at sourcing news, often shining their dead-tree counterparts.

If on the internet, nobody knows you’re a dog, then in the real world, nobody knows you’re on the internet. In the era of widespread social-networking, people don’t even need a blog to break news. We shouldn’t be surprised if in the coming years some stories are broken in the status updates of Facebook profiles.

Politicians can hardly expect secrets to be kept when there is so much value from disclosure.

Laws Against Concentrated Media Ownership Hurt, Rather Than Help

The Australian reports today that the Australian Competition and Consumer Commission has begun its inquiry into Fairfax’s acquisition of Southern Cross Broadcasting’s TV and radio assets.

The ACCC has been given a greater role in the regulatory adjudication of media mergers after Helen Coonan’s partial deregulation of ownership law in September last year.

For consumers, these reforms should have been welcome. Laws against concentrated media ownership hurt, rather than help, the cause of media diversity.

Media ownership laws rely on a crude, and possibly erroneous, model of the relationship between ownership and content diversity. Their premise is simple: concentration of ownership is a proxy for concentration of content.

But a growing body of empirical evidence suggests that this link is not as well established as the critics of media deregulation might assume.

Perhaps counter-intuitively, concentration of ownership can increase media diversity. A reduction of the number of owners in a newspaper market often leads to an increase in product differentiation. Firms in these situations find it is more profitable to lure consumers with new products than by trying to ape established ones.

Another classic example here is subscription television, where a single firm offers consumers dozens of highly diverse channels. But the diversity available on pay TV indicates a source of the dull homogeneity of much of Australia’s television – the protectionist management of the broadcasting spectrum. If we are serious about encouraging media diversity we should be at the very least liberalising the number of television licences.

Across the media sector, firms are searching for new business models. The announcement that PBL Media would be taken over by a private equity firm indicated just how aware ‘old media’ firms are of their new competition and their audience’s changing media consumption patterns.

In this context, media concentration and consolidation might more usefully be seen as a ‘circle the wagons’ strategy by firms in traditional markets. As audiences fragment, many firms feel that they have to expand their empires just to keep up.

This may not end up being a successful strategy. In the United States, a wave of consolidations a few years ago has been followed by widespread break-ups and divestitures.

But in such a competitive environment, these firms need to be allowed to experiment with business structures as much as possible. Applying economy-wide rather than sector-specific competition law to the industry is a step in the right direction.