John Key's Thinking Big

eh heh heh heh, well done John Boy. I can almost hear Sir Robert Muldoon chortling away. National's gone back to the 1970s. Welcome back the words "subsidies"and "state socialism" all shrouded in the word "investment". It's revolting.

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For a while now I’ve hoped that given I will dance merrily when Labour loses office, I’ll relax knowing that a National government led by John Key will do a little better. This is even though the list of things that could be better has shrunk on a weekly basis.
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National was once the party of big government investment into infrastructure. Many wont remember the age when oil was at record prices and that the economy was being strangled by the threat of disrupted oil supplies and inadequate electricity.
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So came Think Big- a phrase that lives in infamy for anyone with economic rationalism in their veins.
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Taxpayers paid for a gas to gasoline plant at Motunui. I remember how Rob Muldoon and Bill Birch cheered it on, saying it would produce half of the country’s petrol. By the time it was completed, it was reportedly cheaper to convert all vehicles in NZ to CNG and LPG. The cost of building it was written off as government debt before Petrocorp was sold. The plant is no longer in operation. One wonder if the public would have paid for gas conversion kits themselves if the government of the day didn’t have marginal tax rates approaching 66%. However, central planning lost.
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Central planning lost again when, after years of badgering by the Railways Department, the National government decided to approve the Railways borrowing to electrify the central part of the North Island Main Trunk railway (Hamilton to Palmerston North). Apparently the export boom of the late 1970s had strangled the capacity of the line (which through that segment is particularly steep and windy) and electrification would allow longer and faster freight trains. NZ$350 million was the final cost of electrification. However whilst it seemed a good idea at the time of high oil prices, another move by the same government eliminated the capacity problem. You see the railways had a capacity problem whilst having a legislated monopoly on almost all freight consigned for distances of over 150km. So in 1983 that monopoly was removed, and funnily enough the railways lost about 18% of its freight tonne-kilometres carried relatively quickly. Problem solved. Furthermore having corporatised the railways (Labour didn’t start it), the newly business like Railways Corporation had a study undertaken which demonstrated it had enormous scope to cut costs and increase productivity, through measures like eliminating guards vans. So more could be carried without pouring concrete and stringing up wires. That same corporation commissioned the then Coopers and Lybrand to investigate if the electrification could be an economic investment, but it concluded it would lose money even if electricity were free.
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As a result of that the Labour government of the time bailed out the Railways Corporation (for the first time since its creation) by taking over the entire debt for the electrification. It is notable that the sale price of New Zealand Railways on privatisation roughly equated to that debt. Another failure for central planning.
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So now the National Party thinks it knows best again announcing that it is forcing YOU to pay NZ$1.5 billion to “invest” in a broadband “fibre to the kerb” network. This will be one of the biggest handouts to an industrial sector since Think Big. The term “invest” is thrown about with abandon by politicians who want to use your money, after all “spend” is honest but sounds less worthwhile, “subsidise” is more honest but it’s a bad word. So it’s invest. I’m sure we can all come up with things that we’d like to force others to “invest in”. Of course unlike roads, this network wont reach virtually every property now, will it? You'll all pay though!
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So what is this all about? Well besides all the hype about generating jobs and investment (yes heard it all about Think Big too, and Jim Anderton hyped it up about his own Ministry of Economic Subsidisation), Key says this new socialist programme (which it is) involves five principles:

- The network being open-access (like the roads, and every peak period in Auckland you see how that works);
- ensuring the investment does not see already-planned investments cut back (of course not, after all the government building a network in competition to your own, or one you could use instead of building one. Why would it? Of course it will, we’ve already seen how local loop unbundling killed Telstra Clear’s investment programme in hybrid fibre-coax broadband/cable tv networks);
- ensuring increased broadband services (meaningless. It’s like saying I hope building this road means more freight and people get moved); and
- making sure we do not end up lining the pockets of incumbent industry players (ohh the “boot into Telecom” point. No, you’ll line the pockets of the contractors who build it and whoever has the job to manage it. You see they wouldn’t have had to do it unless you’d taken money off of other people and forced them to pay for this.
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So it’s time to ask some questions:
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1. What would happen to broadband services if this DIDN’T happen? Wouldn’t those who would benefit immensely from it continue to buy existing services creating a market for new infrastructure?

2. Has Labour’s socialisation of Telecom’s local loop hindered and will it continue to hinder private sector investment in alternative broadband technologies? If so, wouldn’t it be wiser to let Telecom make money out of its own network and for competitors to build duplicate ones? (hey if its such a great investment it will happen wont it? If it’s not why are taxpayers paying?)

3. What other barriers exist to private sector roll out of broadband, such as the RMA and local authority preciousness about overhead wiring?

4. Who would run this broadband network, what happens if it goes wrong? Will it charge to make a commercial return on investment?

5. Why is telecommunications so special it needs a massive subsidy from the rest of the productive sector?

6. Are those who will benefit from faster broadband willing to pay for this, and if not, why should everyone else do so?

7. What could the rest of the productive sector do if the money, that was their’s in the first place, was handed back to them in tax cuts?

8. Why shouldn’t software, fruit growers, painters, watchmakers, publishers, plumbers, taxi firms, pharmaceutical companies, biotechnology firms, caterers, hoteliers etc etc get a handout too?
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Finally, John Key’s claim that “One hundred and fifty years ago the government had the vision to build railways and highways to facilitate the movement of goods” is nonsense. There were no railways in New Zealand 150 years ago for starters, the first was opened in the 1860s but construction didn’t really take off till the 1890s. Some were built by private enterprise, such as the line from Wellington to Palmerston North, and much of the line through Arthurs Pass. Many of the railways built were marginal and served, well nowhere. Noticed Waikaia, Waikaka, Eyreton or Tokarahi on the list of great booming towns? No – they were all lines built for political reasons, to prop up land prices and win elections. The government funded railways were actually primarily funded by local and provincial governments, as were the roads. Central government had little to do with it. Local governments did this as they could raise money from land released for sale and developed. There was no such thing as national highways until 1922.
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So there you have it. Will ACT resist this Think Big attempt to bribe the IT sector? David Farrar, as always liberal on most things, is singing the praises of this enormous handout to the sector he is involved in, rather disappointingly.
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After all, is the telecommunications sector so strapped for cash that it can’t invest? If it is a matter of wont rather than can’t then why not ask why rather than make everyone else step in?

Telecommunications nationalisation

Not PC has said much of what I want to say, and I have said much in the past about the absurdity of local loop unbundling, and the de facto decision by the state to decimate investment in competing telecommunications networks by granting property rights over Telecom's network by its competitors.

There is a story about the success of deregulating telecommunications from 1989 through to 2001, the time that getting a phone line installed became quick and easy, when national and international call prices plummeted, as did cellphone calls. This is the time that a company came in and built, from scratch a duplicate nationwide telecommunications network - it was BellSouth at first, but Vodafone built the bulk of it. It is the time that Saturn (later Telstra Saturn and then Telstra Clear) built a hybrid fibre/coax telecommunications network to homes and businesses on the Kapiti Coast, Wellington City, Lower and Upper Hutt, Christchurch city - and planned to do the same in Auckland, Hamilton, Tauranga and Dunedin - yet, funnily enough, decided not to when the government started granting property rights over Telecom's network.

Now the very same people who wanted Telecom's network to be everyone's to use, but not anyone's to make an investment out of - decry that there might not be the incentives to build a next generation network of fibre optic capacity to the kerb. Funnily enough, when dialup internet was king in the late 1990s there WAS the incentive for two firms to do it - Telstra Clear as I mentioned, but Telecom did so also in parts of Auckland and Wellington, until it decided ADSL was cheaper to roll out in the meantime.

So what has been created in the last eight years of Labour government reforms has been to incentivise usage of Telecom's existing network - which is all very well if you believe that is the beginning and the end of telecommunications - except most don't. Some believe that fibre to the kerb is the next step - some believe it is wireless, some may argue that satellites can offer a solution. The state wont of course know best - in fact not one company will. Telecom got it wrong on mobile phone standards, and got it wrong on hybrid fibre coax in the late 1990s. The Post Office got in wrong in the 1970s by having triple twisted copper wire lines installed in parts of Wellington. How can the state get it right now?

and no. The arguments that "we'll all benefit" and it's "like the roads" are just fatuous. Those who will benefit from state subsidised investment (which all state investment) are those who will be internet intensive businesses. They aren't special any more than energy intensive, labour intensive or land intensive businesses. Remember how the great state folly in the late 1970s, early 1980s was replacing foreign oil - when all those "investments" were written off, as the price of oil plummeted and energy was no longer a problem (funny how most of those are irrelevant now when oil prices ARE high).

and roads? Well let's remember how roads are managed. When most people want to use them, they queue for them and get appalling service, some are in excellent condition, others are barely usable, there has been a massive backlog of deferred investment, except in politically driven projects which have dubious benefits. It takes years to get any extra capacity built, and there are plenty who lobby against it - and if you don't like the service, you generally don't have a competitor (except the railways, which may be akin to the postal service competing with email).

Kedgley peddles more hysteria

Like some parroting hysteric, Sue Kedgley has found a new conspiracy which threatens the health and lives of us all. It is the possibility that telecommunications transmitters might be installed, of all places, on top of power poles. Her reaction tells all about the use of language as propaganda.
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The tenor of her press release is seriously unhinged and outright scaremongering with statements such as “telecommunications companies will be able to clutter power poles in residential areas and next to schools and childcare centres with new cellular and wireless technologies”.
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In that once sentence she loads so much evidence absent value judgments to frighten the ill informed, i.e. those who vote for her. “Clutter” apparently implying that somehow we’re all using the top of power poles now, and will be interfered with, or that it will be ugly. I am willing to wager than in one day, Sue Kedgley would be unable to identify every single telecommunications transmitter site in Wellington City – because so many of them are unobtrusive, and plenty are on top or on the side of building with nobody noticing them. However, I am sure it wouldn’t be “clutter” if they were broadcasting a free to air commercial free channel of leftwing doggerel.
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Then she talks of “next to schools and childcare centres”, implying, though not saying, that transmitters are “unsafe”. She likes claiming new technologies are unsafe, it gives her something to regulate, something to blame at and it looks like she is saving us all from the evil companies who don’t care. The truth is that she is an unscientific busybody who prefers fear and hysteria to science and balanced debate – she squawks like a parrot, happily stirring fear to gain votes.
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She continues "We have set up a power pole in Mount Victoria with antennae and masts, to demonstrate how visually intrusive power poles around New Zealand could become”. No doubt using the latest technology with every incentive to make it work efficiently and be unobtrusive right? Of course most homes in New Zealand already have antennae, masts, some have satellite dishes. Perhaps they are visually intrusive too, as are the trolley bus wires that provide a 550v netting over many major arterial routes and city streets in Wellington – but that’s ok, because electric buses are good – telecommunications companies are bad. Of course she has a cellular phone and rarely catches a trolley bus – funny that.
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She continues her rant “there will be no restrictions on the number of masts and antennae hanging on poles outside homes and bedrooms, regardless of concerns about the health effects of increased exposure to radio frequency radiation”. Forgetting that the laws of physics do impose such restrictions, given poles can’t carry unlimited numbers of these things, and there are serious issues of avoiding harmonics and interference between antennae, and if you have a bedroom next to a power pole then more fool you. More importantly the “health effects” are largely a beat up by her. She completely ignores that every single radio and TV transmits non-ionising electromagnetic radiation, she also ignores the proliferation of home wifi systems as well – presumably this is all good, or because it isn’t an evil entity (telecommunications companies fit that category), it isn’t worth her attention.
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Finally she says “There is no obligation under the proposed national standard for the companies to pay rentals for the usage of power poles, which in many cases are owned by state-owned enterprises”. Again, her lack of command of the facts says a bit about her. Very very few power poles are owned by state-owned enterprises, largely because most are owned by electricity lines companies. These are not retail companies (which SOEs most certainly own). The implication here is that the beloved warm embracing state that she loves is being “robbed” because of a lack of rentals. She should relax. Not only are they not owned by state owned enterprises in almost all cases (and transmitters on top of Transpower masts are likely to be hardly an issue for numerous reasons), but the issue should be whether owners of poles should be allowed to.
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So there it is, a press release of hysterical assertions, and leading value judgments with next to no evidence. It bears a mild resemblance to the sort of nonsense that passes for news from North Korea – blurting out fear, blame and demands that something be done – when scratching the surface it is just a grasp for attention, pleading to the ignorant by the power hungry and envy ridden.

TUANZ - socialism in telecommunications

Ernie Newman has been head of the Telecommunications Users Association of New Zealand (TUANZ) for some years now. TUANZ has been one of the leading lobbyists for the so called "rights" of telecommunications users, rather than producers. It has supported the government's decimate of part of Telecom’s property rights over its infrastructure, and compulsory funding of telecommunications infrastructure. Of course, TUANZ, you see, produces absolutely nothing.
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As an association of users, it seeks to represent their interests. Now this isn’t in itself a bad thing. There is always value in consumers having product information, and to inform suppliers about demand and what they are interested in. However the agenda of TUANZ is a bit more than that. TUANZ demands that the state ensure that suppliers provide it with what they want.
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Imagine a FUANZ for food. FUANZ would demand that the state regulate the price of food, guarantee a certain variety of produce and foods be available across the country at a similar price, and probably would want supermarkets which had no competition within a certain area to open up parts of their property to competing retailers. FUANZ would be ridiculous, so why isn’t TUANZ?
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TUANZ talks as if competition in telecommunications is new, just because Telecom is forced to allow other companies to use its property at a price dictated by the state. It largely takes for granted the vast reduction in prices for many basic telecommunications services, such as national and international calls, internet provision, mobile phone services, which all arose without local loop unbundling. TUANZ would say it wasn’t enough- but did you see TUANZ investing a dollar in a network? Well it might argue some of its members did, as TUANZ has been supported by many of Telecom’s competitors for years. At one point if I recall correctly, Telecom gave up on membership of TUANZ, because it was sick of helping funding a lobbyist that was so against it, and was effectively representing the interests of its competitors.

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TUANZ has long supported local loop unbundling, which is now compulsory in NZ (as it is in many countries admittedly, but then so is a state monopoly on postal services). It is predicated on it being economically unviable to duplicate Telecom’s twisted copper pair local telecommunications network, and therefore the provision of broadband internet capacity.

Funnily enough, it hasn’t been predicated on competition in local phone services, largely because the price of these has never really been seen to be too high. Besides, with the Kiwishare Obligation, Telecom has been required to grossly cross subsidise rural phone consumers from the cost of urban phone consumers.
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Ironically, having achieved the effective nationalisation of the local phone network of Telecom (though not the duplicate one of TelstraClear in central Auckland or suburban Wellington and Christchurch – one rule for one), Ernie Newman is not yet happy. Decimating Telecom’s property rights of course decimate its interest in investing in that network, something dismissed by Newman and the Labour regime as being of less interest than competition. You see, it wasn’t seen to be reasonable to simply sit back and let competitors invest in a duplicate network. Telecom's competitors wanted access to Telecom's network to resell its services under their brands.

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Somehow building duplicate networks was deemed uneconomic even though:
- Bellsouth, then bought by Vodafone, virtually duplicated Telecom’s entire mobile phone network within five years;
- Saturn/Telstra-Saturn/ Telstra-Clear duplicated Telecom’s residential phone network with a combination twisted copper pair/hybrid fibre coax network in most of suburban Wellington/Hutt Valley/Kapiti Coast and Christchurch;
- Satellite based broadband (high speed downloads not uploads) has been available nationwide for around nine years.

Don't forget the barriers that local authorities through the RMA have imposed on this network duplication, but that is an aside.

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Now Newman in the NZ Herald is saying”
“As telecommunications increases its role as a dominant force in our lives, a small country like New Zealand has a vast amount to gain in productivity and lifestyle terms from taking the extra step to be an early adopter.In the 21st century this means replacing copper wires with fibre optic cable”.

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Words of a sector seeking protectionism or subsidies if ever there was one.

To which I say – what the hell was the point of decimating Telecom’s property rights in technology you now deem obsolete? He talks of it bringing great benefits, with high speed video, voice and data services – great. You might ask yourself what else you might like at home, like a jacuzzi, home gym, you might like more overseas holidays, so bear this all in mind.

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Newman continues:
“In total, the cost of digging up the nation's footpaths and rose gardens to replace copper with fibre looks daunting.”

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Surely not Ernie, if after all, everyone wants what you say they want, they’ll pay for it! He says it will work this way:

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“Fibre to the street cabinets is the job of the phone companies - they've already started.”

The “they” are interesting, I would have thought it was all the job of the phone companies, but then Newman wants to make it easier for them and for his members. He goes on:

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“From the street cabinet to the letter boxes should be a job for local authorities or power companies - provision of infrastructure services is work they excel at.”

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Should be? Why did Telecom do this in the 90s, why did Telstra Clear? Since when did local authorities “excel” at provision of infrastructure services? Has he seen how water/sewer infrastructure in some rural districts is in a crisis? Roads in Auckland? The great days of municipal electricity companies underinvestment and regular power cuts? What’s stopping power companies now Ernie? What has been smoking? Either he wants to force them to do it, or with local government force us to pay for it – given what he says in his next statement – it sounds like a bizarre string of payments.

“And the letter box to the living room should be the customer's contribution - once I have fibre running past my letter box I'll gladly pay to get it to the house to improve my quality of life and ability to work, and add value to my home.”

Well Ernie good for you, surely you would pay the phone company for the lot directly or through the fees you pay for the services you think everyone wants to improve their productivity.

You see, Mr Newman sees telecommunications like roads – except roads are paid for by users of course, and he ignores the tragedy of the commons of roads – which is congestion, gross overpayment by some users (trucks on rural Canterbury state highways) and gross underpayment by others (car commuters on most congested Auckland routes).

He says:

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“Broadband is infrastructure - the "roads and railways of the 21st century". Investment in infrastructure is inter-generational and has an economy-wide payback.”

Complete rubbish of course, as broadband infrastructure hardly has a depreciated life anywhere approaching a road or a railway line. It doesn't justify why those who DON'T use it should be made to pay for it. It is easy to physically duplicate telecommunications infrastructure, and it can be done wirelessly as well as by cable. Roads aren’t quite as easy. The “economy-wide” payback is the same sort of socialist nonsense that farmers, motor vehicle manufacturers, and ever other featherbedded industry put forward for state protection and subsidy. The truth is that state investment in infrastructure has been incredibly wasteful in many many cases. Why should it be any better now?

You see governments tend to invest not based on commercial returns at all, but on a combination of economic appraisal and political imperatives, because they are not spending their own money, but other people’s for which they are not accountable fundamentally.

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He goes on about fibre networks being “common roadways” so everyone uses and no one takes responsibility. He calls for public investment in broadband – which to get rid of the euphemism is forcing you to pay for a network you may or may not use. He wants a sharing of the cost between public and private sectors.

TUANZ is now the telecommunications subsidy association of New Zealand. New Zealanders should tell Newman to get the hell out of the wallets and that if he stopped lobbying for government to hamstring the largest investor in telecommunications then he might get more investment in new technology and networks. Newman might ask Telstra Clear why the hell it doesn’t roll out a competing network and if it isn’t economic then he might ask his members to invest in one themselves. Newman might wonder why the hell he thinks the people he represents are more important than consumers of books, music, shoes, air travel, antiques or the like, or why telecommunications providers are more deserving of taxpayer support than farmers, manufacturers, restaurants, trucking companies or others?

Or maybe why people need to be forced to pay for something? Maybe people don’t really want the “triple play” of high speed services he says are so compelling, or rather they wouldn’t choose to pay for that over a new car, overseas trip, new shoes, reducing their mortgage or a nice bottle of wine. He uses the arguments of a socialist, and does no service to users or producers in doing so.