Month: July 2006

Regulator Should Butt Out On Fibre-Optic Broadband

It is unfortunate for consumers and businesses that Telstra’s potential $3 billion-plus investment in a large-scale fibre-optic network and the coming T3 sale have coincided.

The debate over the two have rarely been separated, but at stake are two very separate issues, with very separate stakeholders. Treasury officials are concerned with maximising the price of Telstra’s sale, but consumers and businesses should be concerned about the circumstances in which we allow infrastructure investment in this country.

As Australian Competition and Consumer Commission chairman Graeme Samuel has correctly noted, Telstra’s fibre-optic plan is “not the only game in town”. A consortium of Telstra’s competitors, including Optus, Macquarie Telecom, Primus and Internode, have proposed an open-access network. Tellingly, all their proposals would require heavy investment from Telstra.

Telstra’s competitors are merely following Telstra chief executive Sol Trujillo’s lead and conducting regulatory negotiations through press statements.

Unfortunately for the regulator, the obstinate Telstra refuses to sign up to its competitors’ plans. Telstra has the money to do so, but, under the current regulatory framework, no desire. And why should it? The ACCC has argued that any investment by the carrier would be subject to a “fair” return. But it is not the ACCC embarking on this risky business venture – Telstra is a company that at least in theory should be aiming to maximise its financial returns. If a company, or individual for that matter, makes an investment in the market, they should be subject to their own judgement of what constitutes a fair return, not what a national regulator considers one to be.

But such thinking is largely alien to the ACCC, which has long believed itself to be the patriarch of large infrastructure investment in Australia.

The classic justification for the imposition by a regulator of shared access does not apply to Telstra’s fibre-to-the-node (FTTN) proposal.

The carrier built its copper-wire network under a government-imposed monopoly. It used taxpayers’ funds to do so. Under these circumstances, it was perhaps reasonable to have a regulator open the network up to ensure at least the vestiges of competition. But there are very real problems with such a regulatory regime.

Access-based competition encourages service providers, initially leeching off the monopoly provider’s network, to step up the “ladder of investment” – slowly investing more and more in the existing infrastructure. This has its advantages in a marketplace with little innovation.

But having now invested a great deal in the existing network, these carriers are faced with the prospect of being abandoned by Telstra as it jumps into a largely separate new network.

The ACCC’s framework has encouraged the growth of small, fly-by-night internet service providers, whose business model is nothing more than a reliance on the ACCC-determined access prices. Country-wide, there are more than 250 of these ISPs, encouraged not by the whim of the free market, but by the decrees of the regulator. Given their perilous profitability, they are ill-equipped to withstand the rapid technological change of the sector.

Access sharing does nothing to encourage true, facilities-based competition. And there are few other industries where facilities-based competition, and the innovation which propels it, are of such paramount importance. Given the ever-increasing range of technology by which high-speed broadband can be delivered to the home – and to the mobile phone – we cannot afford to discourage entrepreneurs from experimenting with new business models and products.

And, not least, access sharing constitutes a massive taking of property rights. This may not have been of much concern to regulators a decade ago, when they were faced with the taxpayer-supported Telecom, but with a nominally private company whose investments are subject to free will, this should be of great concern.

The communications market has been liberalised for the past decade and subject to a radical shift in emphasis. It is important to remember that consumer demand has moved from the basic telephone service to mobile telephones, to video-playing iPods. There are now large numbers of telecommunications providers, many of which are justly proud of their investments in infrastructure across the country.

But Telstra’s competitors and the ACCC want to migrate the access-sharing framework, developed a decade ago for a monopoly network provider, onto a fibre-optic network developed by an entrepreneurial company with private capital. The FTTN network is highly speculative. Given the current state of technological innovation, it is a risky investment. Telstra must bear this risk alone.

The FTTN network will not be the last investment Australian firms make in telecommunications infrastructure. Rapid technological change makes it a certainty that every few years significant upgrades will be made to our national communications networks. But if regulators are given a right of reply to every investment and pricing adjustment, Australian broadband will lag well behind what a wealthy, prosperous nation should have.

You Are What You Chose To Eat

It is a tribute to Australia’s prosperity that people in poverty are more likely to be overweight than underweight. But rather than a celebration of the achievements of economic growth, this has instead led to cries of an “obesity epidemic”.

For instance, Ross Gittins argued (Opinion, 28/6) that this is a case of market failure that we need the government to remedy.

It is clear that the average weight of Australians is increasing. But obesity is a complicated area, and health advocates would do better to analyse the long-term causes and effects before rushing into calls for government regulation.

Using the standard measure of obesity, the body mass index (which, in simple terms, compares weight with height), obesity is on the rise. At present, 21 per cent of Australians are classed as “obese”.

However, the medical literature is highly sceptical of the validity of this measure that takes no account of body composition, such as muscle or bone. It may be that many people now classified as obese are, in fact, “big-boned”.

Our consumption habits also tell a complex story. OECD data shows that daily energy consumption per Australian has actually decreased since the early 1960s by about 125 kilojoules. Similarly, our sugar consumption has also gone down. Many nations, including the United States, have seen increases along these lines, but these figures indicate that Australian consumption is getting more, rather than less, healthy.

Even more surprising: a study from the Centres for Disease Control in the United States found that “overweight” people had a lower risk of death than those of normal weight. Not only that, but this lower risk partly cancelled out the increased deaths from obesity.

But we are getting heavier. Part of this is to do with the composition of our diet.

As the millions of supporters of the Atkins diet will argue, what we eat now is radically different from what our ancestors ate 50 or 100 years ago. But it is also true that what those ancestors ate is radically different from what their ancestors ate. Food consumption has been one of the biggest changes brought about by our centuries-long process of globalisation.

More recently, technological change and supply-line innovation in food manufacturing has drastically reduced the cost in time and money of food preparation. It is arguably a wise economic decision to eat out rather than in, especially when factoring in the time of shopping and cooking a meal.

As the quality and variety of manufactured food has gone up, its price has gone down.

But most of the recent growth in weight is not directly attributable to our food.

A study by the economists Darius Lakdawala and Tomas Philipson found that only 40 per cent of weight gain since the 1970s is due to changes in diet. Rather, the large part of our weight increase can be attributable to changes in lifestyle and work practices.

Contrary to what Gittins has argued, this is not an opportunity for government to intervene.

First, government regulation doesn’t seem to work. Sweden has every program on the book to combat childhood obesity. Advertising aimed at children under 12 is banned. Sports programs are heavily subsidised. Healthy cooking is part of the curriculum. But the number of overweight Swedish children has tripled in the past 15 years.

The market is remarkably good at educating people on the negative consequences of their decisions. Balancing against the advertising for high-sugar snacks, television programmers have provided shows like What’s Good for You and The Biggest Loser.

All of these programs have been produced not by government, but by corporations eager to maximise their ratings, and therefore their profits.

In fact, data from the United States indicates that the number of food and restaurant commercials viewed by children has actually declined over the last decade.

Consumers are becoming more aware of the consequences of fatty and unhealthy food. This change in demand goes far past the salads at McDonald’s. Juice bars, wheatgrass shots, bioengineered food and even sushi were unheard of to Australians 50 years ago.

The notion of a government regulating to protect people against obesity used to be unthinkable, used as a parody of anti-tobacco legislation. Unfortunately, it shows us how far the political debate has moved from personal responsibility to government responsibility.

But is there a clearer area in which individual responsibility must take the fore than when choosing what we eat? Government regulation is not the solution to the obesity crisis.

Orwell’s Curse

A review of Privacy without Principle: The Use and Abuse of Privacy in Australian Law and Public Policy by Brett Mason (Australian Scholarly Publishing, 2006, 228 pages)

Privacy is a strange concept. Few debates over new technologies, changes in social structure or security measures are free from appeals to the right of citizens to conduct their affairs without surveillance, from either the corporate or the political sector.

As Brett Mason argues in Privacy without Principle: The Use and Abuse of Privacy in Australian Law and Public Policy, privacy has become a term of convenience for advocates of one or another political position.

The term itself has little conceptual core. Mason traces the variety of methods by which legislators, judiciaries and commentators have attempted to define the core of privacy — what is it that we are trying to protect? Privacy could be control of information regarding oneself, or deeply personal information that one may not wish to be made public. Privacy could be a manifestation of the autonomous individual, or could be the protection of intimacy.

In order to make consistent public policy decisions which respect the notion of privacy, legislators need an unambiguous and comprehensive definition. But none of the answers listed above, Mason argues, are conceptually clear, and provide little guidance for practical policy decisions. How, then, is the concept of privacy used in Australian politics? Mason singles out two debates within the last few decades — the 1994 Human Rights (Sexual Privacy) Act and the 1986 Australia Card Bill. Both of these debates exhibit the critical flaws in privacy discourse.

For example, why was privacy the vehicle upon which to legitimate homosexuality? While not always consistent with a liberal society, from a historical perspective, the state has always had an interest, or at least believed it had an interest, in the sexuality, sexual acts and reproductive habits of its citizens. The Human Rights (Sexual Privacy) Act sought to remove homosexuality from the interests of the state, but by hanging the act upon the concept of privacy, it did gay rights movement’s cause a great disservice.

The 1994 legislation posited that homosexuality was acceptable, as long as it was a private or intimate matter. If privacy is the foundation of the state’s interest in homosexuality, homosexual ‘legitimacy’ is premised on a staying in, rather than out, of the closet.

Mason also raises some other, challenging questions. For instance, if privacy determines the state’s interest in individual sexuality, does it follow that all (non-coercive) sexual acts are also legitimised? Such a formula would seem to legitimise acts which policy-makers may prefer not to condone, for instance, incest. It is unfortunate that the debate over the government’s interest in homosexuality in Australia led to a debate over what distinguishes homosexuality from incest. Advocates of gay rights are not well served by such appeals to privacy.

The Australia Card debate, and indeed, subsequent debates about national identification cards, have similarly used the concept of privacy loosely, often to their detriment. In this sense, George Orwell has done civilisation a great disservice. Both sides of politics ask a great deal of contemporary governments.

Government services need to be efficient. The terms of property have to be clearly defined. Laws need to be uniformly and rigorously enforced. Citizens need to be secure and, argue many from the progressive side of politics, they also need to be protected against their own choices.

Privacy is an inadequate focus of the debate over the relationship between the state and its citizens. That relationship, particularly in a time when social regulation and legislative paternalism are on the rise, needs to be closely examined.

But the doctrine of privacy against all else — undefined and unchallenged — does such a debate a great disservice.