PPF Index for January

The Pensions Protection Fund has updated its Index of the collective health of the UK’s 7,400 or so defined benefit pension schemes.

The latest figures (for January) are that the total deficit has widened over the course of the month to £51.9bn, from £32.6bn at the end of December. Some 75% of schemes are in deficit. The reasons for the drop are almost exclusively to do with falling asset values as a result of lower equity prices (particularly over the last week or so in the month); the total value of liabilities having remained almost static. The size of the deficit compares with a total asset base of £859.6bn (thus giving total liabilities of £911.5bn) – so it remains the sort of figure which is well within manageable limits.

Last week’s suspension of the Bank of England’s quantitative easing programme should result in improved prospects for liabilities since gilt yields – which is used to measure the current value of scheme liabilities – should now start to rise as a result. After a rally during early February, equity prices have continued their falling trend, indicating that asset values are – at least this point in the month – still falling. The resumption of the decline in the stock market coincided with the suspension of quantitative easing, leading some to question whether there was a direct link between the two and, indeed, the overall effects of the programme. Others have also wondered whether this may be the start of a mini-slump – or even a ‘double dip’.

For pensions, the good news on the one hand thus looks likely to be counterbalanced by bad news on the other. Well, ’twas ever thus…

Personal bankruptcies on the rise

Today’s Datablog in The Guardian picks up on last Friday’s quarterly report by the Insolvency Service publishing the numbers of corporate and individual insolvencies for the fourth quarter of 2009.

Some one in 320 individuals in England and Wales declared bankruptcy last year, a rise of around one-quarter on the 2008 figures, and the figures are higher than at any point in the years since records began in 1960. There were around 6,000 corporate liquidations and insolvencies. The latter group of figures is clearly linked to the recession (and corporate bankruptcies for Q4 2009 show a sharp drop on the picture one year ago) but, as the historic trends indicate, the figures for individual insolvencies have been rising for some years. In fact, the figures started to take off around 2003/04, substantially before the recession, rising particularly sharply in the first half of 2006, before actually falling through 2007 (and then resuming an upwards trend during 2008/09). The link to economic activity is, in the case of individual insolvencies, thus much more difficult to sustain and the current figures are clearly not an accurate bellwether for the state of the economy.

Behind every insolvency lies a personal tragedy – and, despite the slope of the rise, the relatively low numbers of individuals having to declare bankruptcy do give a lie to the apoplexy which the publication of the figures was greeted from some of the usual suspects. The reasons why insolvencies have risen so sharply remain difficult to fathom. Easy access to credit may be one factor – but this has been case for years and did not, during the 1980s, 1990s and the early part of the noughties, give rise to such figures, although the biggest year-on-year rise in the figures did come in 1991, when the UK was previously in recession.

The long-term decline in the share of national income taken by wages, which fell by two percentage points to 53.2% between 2001 and 2008, is likely to account for a fair part of the rise, leaving people increasingly stretched on incomes which have either stalled or not risen as fast as hoped. This therefore represents something of a double whammy, since a rising share of income taken by non-wage sources also helps to account for the speculative bubbles which caused the recession. Even so, the share of national income taken by wages is still above its record low, in 1996 – though economic growth might then have masked any effects of this at the individual level.

Whatever the factors which explain the rising tide of individual insolvencies, policy solutions which attack wages directly and which threaten the employment prospects of people in work are clearly going to exacerbate the problem still further.

Well that worked, didn’t it?

A belated reaction to last Friday’s decision by Alliance Boots to close its two final salary pension schemes to future accrual.

The company insists that the decision has not been made on cost grounds, but there appear to be two rationales drawn from the company’s own reported words:

1. protect the business from the effects of pension funding volatility

2. ensure the long-term sustainability of the group’s UK retirement savings schemes (which of course encompass DC provision as well as the DB schemes being closed).

With regard to (1), Boots was the first major company to opt to switch its pension fund assets entirely into bonds rather than equities – a move it undertook around ten years ago (for some techie background, see here for article by John Ralfe, written while he was Boots’s head of corporate finance and a member of its trustee investment committee). Bonds are low growth vehicles but which don’t jeopardise capital assets, and such a move was touted at the time as a solution which would lock equities-driven asset values into the asset bases of mature schemes.

Only, it doesn’t seem to have worked. One likely reason for this is the increasing growth in longevity in retirement – which, to compensate for without recourse to the scheme sponsor, is likely to require pension funds being invested in assets that are, well, a little more exciting. Indeed, The Times reports that the Boots schemes has previously switched back at least a portion of its assets into equities and property since the date of the last assessment of the scheme’s health (March 2009). Reading between the lines of the story in The Times, I’m wondering whether, despite having been in surplus last year, the forthcoming formal valuation is likely to show a deficit in the schemes, perhaps driven by a combination of increasing longevity and the impact of the Bank of England’s quantitative easing programme in lowering bond yields (and thus inflating scheme liabilities). Certainly, the purchase of equity-based assets within the last year is likely to have been a policy which, currently, will show strong returns. If there is such a deficit, it will require a recovery plan to be put in place, entailing higher expenditure from the company. This would certainly explain the rationale of ‘protecting the business from the effects of pension funding volatility’ – a somewhat differently-faceted explanation than one based on cost alone.

This is also a timely reminder in the context of Ofcom’s Pensions Review that schemes need to invest in a range of investment vehicles appropriate to their membership profile, not to concentrate in one or other type of vehicle. A mix of assets is likely to remain the most sensible investment strategy. Again, of course, it also amounts to a plea for a long-term perspective on pension fund investments- one to which, however, the private equity owners of Alliance Boots may not necessarily be sympathetic.

As regards the second explanation, the Times’s revelation that 70% of Boots employees are not members of any schemes (the DC schemes have around 5,500 members, compared to around 15,000 in the closing DB ones, out of a total UK workforce of around 75,000), in conjunction with its own reference earlier in the article to the 2012 reforms, tells its own story. Given these extremely low participation rates, auto enrolment will indeed present its own challenges as regards the total sums invested in providing employee pensions, even on the basis of use of the National Employment Savings Trust scheme, still less on the presumption of the continuation of Alliance Boots’s scheme which is likely to operate on the basis of a higher employer contribution rate than that which will fund NEST, at least in the first instance.

If the issue is one of the effects of the quantitative easing programme in inflating scheme liabilities, then today’s call by the NAPF for the issue of more long-dated and index-linked gilts is timely as regards the continued survival of other DB schemes. It’s a call that the NAPF has made before, and it remains a supportable one.

Finally, it also remains true that the best protectors of members’ interests in pension schemes continue to be a cadre of well-trained, independent and vocal member-nominated trustees firmly backed by trade union organisation. Schemes with such an independent presence on the trustee boards are likely not only to be well-run but also more accountable in terms of the decisions they make. That’s a lesson which all too often is only learned when it’s too late.

Europe’s sticky iron curtain

The European Commission’s annual report on the social situation in the EU has just been published, revealing not only striking differences between EU member states but also divergent trends between them in the period since the EU was expanded to cover the new member states in central and eastern Europe. For the majority of them (i.e. all of them except Romania and Bulgaria), 2009 saw the fifth anniversary of their accession – time enough, you would have thought, for views to be less, not more, divergent.

The report is supported by a Eurobarometer attitude survey on the social climate, based on the views of around 1,000 adults in each of the 27 EU member states, plus in the three candidate countries of Croatia, (Former Yugoslav Republic of) Macedonia and Turkey, conducted in May/June 2009 and intended to be the first in a series of such surveys. It is striking that people in EU member states in northern and western Europe – regardless of the social measure used, be it within their personal situation, the general situation or in the area of social protection and inclusion – tend to report the highest levels of satisfaction with their current situation and prospects, while people in states to the central and eastern half of the continent (i.e. the new member states) reported the most dissatisfaction.

The reasons why the transition in former communist countries – even those untouched by war – has been so difficult are many, and the tough economic recession, with fragile economies in central and eastern Europe remaining particularly vulnerable, has clearly not helped. Social change, including large-scale population movements, has presented particular challenges. Nevertheless, it is equally true that, twenty years on from the start of the transition, with a whole generation of people not knowing what life was like in the former times, people living in those countries remain much less satisfied with their situation and prospects than is the rule across the rest of the continent. Life remains tough and the potential for disillusion is clear.

In this context, the words of Vladimír Špidla, the outgoing EU Commissioner for Employment, Social Affairs and Equal Opportunities are important:

Today’s report shows once again the importance of our efforts to promote jobs and growth in Europe so as to guarantee people’s social well-being in the future. We must continue these efforts as part of our future 2020 strategy to make the EU a smarter and greener social market economy.

Trade unionists, or European socialists more generally, are unlikely to find much to disagree with there.

What is required, however, is a greater sense of the need to do something more positive on behalf of people in countries in ‘the other half’. In this direction, it is interesting that the new Commissioner, taking the place of Vladimír Špidla, is to be László Andor, a Hungarian whose appointment, therefore, is likely to continue the perspective on the needs in this direction of what were formerly known as transition countries (and which perhaps might still need to be thought of in such a way); Špidla is Czech and, thus, also with a perspective informed by transition. Andor is an economist without much of an evident political background, although his past does appear to have some colour in it, and his appearance in the European Parliament hearings of the new Commissioners have been differently reported (see here and here). At the very least, however, he looks to be a safe pair of hands – and he does appear to be on board with issues on the EU’s social agenda. His tenure at the Commission needs to see greater, and specifically practical, attention paid to the social problems of countries from central and eastern Europe.

Haiti event at the TUC

Just time for a short welcome for tonight’s event, supported by Prospect, and to express the hopes that all going have a great time. Don’t forget to take your folding stuff!

Tickets for the event are as rare as hens’ teeth – so well done if you’ve got one! – but, even if you can’t attend the event, you can still buy the t-shirt…

The TUC has also published news of how trade union assistance is arriving in Haiti and being used for the good of the people there (and see also Owen Tudor’s post over at Stronger Unions) – so you know your donations are reaching their destination.

Broadband connection speeds, competition and investment

Akamai Technologies, which supplies web acceleration and performance technologies, has just produced its most recent quarterly report on global broadband connection speeds. In the light of the recent political debates in the UK, this is timely. The report can be found here (but note that the site requires a (free) registration).

The report is based on data gathered from Akamai’s global server network about broadband adoption and speeds (as well as attack traffic, such as denial of service attacks and hacking activity, which is also monitored regularly). So – it’s not necessarily authoritative (because it is intended to highlight the company’s services), but it is certainly indicative. Data was gathered for the third quarter of 2009.

South Korea was the country with the highest average connection speed – 14.6 Mbps – while its nearest rivals (and near neighbours) featured at just less than 8 Mbps: Japan (7.9 Mbps); and Hong Kong (7.6 Mbps). The UK had an average connection speed of 3.5 Mbps (this is close to, but lower than, the estimate most recently produced by Ofcom of 4.1 Mbps – see Figure 4.4). So, South Korea is much faster: but note that, in the context of references to building out towards access speeds of 1 Gbps, what is currently being achieved in this country is, on the Akamai figures, only around four times faster than average UK speeds. Which is still impressive enough but, given the existing and plain advantages of South Korea (based around very high population density), not bewilderingly so.

Appendix 6 of the report indicates average speeds for 19 northern and western European countries, and places the UK in 12th place – a rather dismal record in comparison to the fastest country (Sweden), where the average connection speed was 5.7 Mbps, although the UK was in touch with the median speed (4.2Mbps) – especially if we take Ofcom’s version. Clearly, however, access speeds in this country need to be better – much better – than the median if the UK is to profit economically from high-speed broadband.

Interestingly, the European country with the fastest average speeds, and the fourth fastest globally, was EU newcomer Romania (6.2 Mbps), while another EU newcomer, Slovakia, had four of the ten cities with the fastest speeds across Europe (headed by the 24.8 Mbps achieved in Lausanne, Switzerland).

It is unarguable that investment needs to be made to ensure that UK access speeds are improved – there is at least consensus on that. The circumstances in which investment in next generation access and fibre technologies is being made in South Korea, Japan and Hong Kong (and in Romania and Slovakia, for that matter) are not all that evident. But the lesson of the Ofgem report published today, remarking that the ‘open competitive energy market could fail to deliver secure, sustainable supplies in the coming decade’ (taken from the BBC report) is clear. In real terms, and despite a considerable increase over 2004-2006, gas prices are, following a long period of slow decline, lower than they were in 1986 while electricity prices are no higher. There are several reasons why the energy supply industry is in this predicament – but lack of investment is one of them and one of the reasons behind that lack of investment is the drive to cut end prices (driven not least by price comparison websites, as well as by the model of privatisation adopted in the industry, shaped to the same effect).

Good for the consumer in the short-term – but clearly not in the long-term. And it looks a lot like market failure to me.

The telecoms industry in the UK is heading, at least in some respects, the same way – average household monthly spend on telecoms (3.2% of total expenditure) is at a lower level than in 2003 (4% lower, in fact) while the proportion of the spend on internet and broadband, while higher than in 2003, also peaked in 2006 and has declined in each year since, now being at the same level as in 2005. These are not good conditions from which to mount convincing cases for expensive investment in next generation access technologies – and a regulatory policy which is focused on competition and price cutting is partly to blame. That new duty on Ofcom to promote investment in the industry can’t come quickly enough – and, in the meantime, we as consumers need also to recognise that, if we want high-speed services, the existing model of ever-increasing bandwidth at ever-lower prices is not an appropriate one.

The old adage that you get what you pay for remains an accurate one.

OFT seeks competence over T-Orange JV

In a simple statement put out on its website today, the UK’s Office of Fair Trading has requested that the European Commission refers the ‘UK aspects’ of T-Orange – the proposed joint venture between the UK interests of Orange and T-Mobile – to the OFT itself. The request comes in pursuance of the Commission’s invitation to ‘interested third parties’ to submit their observations on the proposal.

This is a very interesting reference in such a short statement, since the JV concerns only the UK aspects of these companies’ international operations – and, therefore, the OFT is seeking competence to examine the joint venture in its entirety. It may be, of course, that the OFT is being deliberately careful to exclude itself from claiming competence over any forthcoming wider merger between Orange and T-Mobile – to which the UK joint venture might be seen as a prelude.

The OFT statement goes on to say that the OFT’s initial view of the merger, following consultation, was that it threatened:

Significantly to affect competition in mobile telecommunications in the UK.

The Connect Sector of Prospect responded to the consultation, expressing the ’strong view’ that it was appropriate for the relevant UK authorities to request that the venture be referred in whole or in part to them, and documenting our concerns, also raised in this blog in the period since the announcement of the JV, over its potential impact on spectrum, on the level of competition within the mobile sector and on employment.

Consequently, this is a welcome response and we will be closely monitoring further developments.

[Edit 4 February: representatives from Deutsche Telekom and Orange are reported to have defended the deal [registration required; limited viewing time] as positive for the UK market and as not being in need of any further reference to the Competition Commission, although nothing has officially been released by either. The Guardian has commented that, chief in the OFT’s reasoning is likely to be the impact of the merger on 3 UK and the dominance of the JV of UK spectrum – the latter, in particular, proving to be a thorny issue. It is also quite possible, as The Guardian argues, that the threat of a reference to the Competition Commission would secure voluntary concessions from the JV partners, not least on spectrum, so this is an issue on which developments might move quickly given the desire of the two to achieve a rapid conclusion to their proposal.]

BT in O2 managed services deal

BT’s Wholesale business has announced a five-year managed services agreement with Telefonica O2 UK under which it will consolidate O2’s fixed and mobile networks in the UK into a single network. In a nod to the problems that smartphones have caused the O2 network, via rapidly rising volumes of data traffic, the intention behind the deal is to provide O2 with access to reliable capacity while also allowing it to focus on customer services rather than network investment.

[Edit 5 February: O2 said also this week that it had over 2m iPhone customers [registration required; limited viewing time] by the end of 2009, when its two-year exclusivity period ended. That means that about one in ten O2 customers have an iPhone. No wonder the network’s creaking! The exclusivity period ended on 10 November, when Orange started selling it, with Tesco (which uses O2’s network) added on December 15 and Vodafone (which turned down the opportunity of an exclusivity deal on the iPhone in 2007) on 14 January. We know that Vodafone sold 100,000 iPhones in the first week [registration required; limited viewing time] (half of which were pre-orders) and that the iPhone constitutes 25% of its new sales and that the company is expecting that to rise to 30-40% in the next 12-18 months [registration required; limited viewing time]. Vodafone has a larger amount of higher frequency spectrum than O2, so its network may be less troubled by such volumes, but these sorts of deals may well become more common in the future. Overall, there must now be something like 2.5m iPhones in the UK, currently less than 4% of subscriber numbers, but the one-way direction of this trend is clear.]

Three things are obviously worthy of comment here:

1. BT used to own O2 until the debt taken on as a result of auctions for 3G spectrum (largely, here and in Germany) forced a re-think of company strategy and the flotation of O2 in appeasement of the City for being asked to contribute to BT’s resultant rights issue. Speculation about whether this deal would have needed to occur had all that not happened is not likely to be all that productive – and this post is not about to start heralding the likely merger between the two companies – but the simple commoditisation of the relationship is interesting.

2. The deal illustrates the networks/services conundrum, with the communications world increasingly divided into providers of networks/network services and providers of communications services (to customers). Allowing one company to do the first allows another to concentrate on the second. To some extent, this has already affected BT internally, with the separation of the core of the company into network (Openreach) and services (Retail and Global Services) arms (Wholesale sits somewhat across both), although how far such a strategy is followed, either in terms of the regulatory approach or else in terms of BT’s own strategy, is a moot point (as well as one being subject to frequent rumour).

3. The fusion of fixed and mobile networks into a single platform – albeit via a third party – illustrates another aspect of the convergence of communications services. The converging of communications markets – a process which has been going on for some time – merited its own section in the most recent Communications Market report by Ofcom (chapter 5) although the convergence between fixed and mobile did not feature (although such a process is quite clearly on Ofcom’s radar – see para. 2.34)). At the same time, the increasing use of Internet Protocol technology within the networks world clearly endows such agreements with a deal of rationality.

Given the typically lower levels of consumer satisfaction with mobile than with fixed networks, the deal may well bring its own problems to BT, although this may well only be around the margins and could well be lost in any further move towards ‘nixing the nines’: BT’s most recent Annual Report already refers to faults on the telephone line being experienced now on average every 13 years (p. 4) – a level which is likely to be more or less unnoticeable to most people.

Nope, still scrabbling in the dark…

Amidst the discussions over whether or not the Tories are softening plans for spending cuts in the event they win the general election with enough seats to form a majority, Shadow Chancellor George Osborne also gave the BBC yesterday further (but not better) on the Tories’ broadband plans.

Looking at the transcipt, Osborne’s promises are, amidst the hyperbole, the confusion and the mis-statements, that:

- ‘the next Conservative government is going to aim to have a 100 megabit Broadband to a majority of the population by 2017′

- ‘And if there are some parts of the country where the market can’t get to (because I think the best way to deliver this is by breaking up the British Telecom monopoly at the moment, which holds back companies like Carphone Warehouse or Virgin) if we find the market can’t do that, then use the BBC licence fee, the digital switch over money in the BBC licence fee, to get Broadband out to the rest of the country. But let’s see, first of all, if we can have the market delivering that super-fast Broadband to the country.’

So, the ‘aim’ is to have 100 Mb access speeds to ‘a majority’ of the population, and the means of funding that (in response to Sophie Raworth’s direct question) will be to ‘[break] up the British Telecom monopoly’ and then ‘use the BBC licence fee’.

Jeremy Hunt is also reported by the Financial Times yesterday (in a very brief piece) to be intending to compel BT to open its ducts as a solution. It would not be a surprise if Jeremy Hunt didn’t read these pages that closely – but I would refer him to my piece on Friday last week (the one just below this one, in fact).

As Osborne didn’t quite note, the aim to get 100 Mbps to a majority of the population is of course easily accomplished since ‘the majority of the population’ of the UK live in urban areas – and quite densely populated ones, at that. (It also seems to ignore that BT currently plans to get 40% of the population connected to up to 100 Mbps services by 2012, so it’s not as ambitious as it sounds.) The trick, however, is to get similar speeds to those living outside such centres (who are in at least as much need of the same speeds, given the references Osborne made to telemedicine): there are clear socio-economic arguments why broadband must be rolled out on a socially equitable basis across the nations and regions of the UK.

Here, the notion that this can be achieved by ‘breaking up the BT monopoly’ is quite laughable. A map of exchanges which have been unbundled under the current programme is likely to bear a very close correlation to centres of population, as is the map of coverage of the UK by cable networks (a map that is unlikely to change significantly in the next ohh, seven years or so) – and there’s a very obvious reason for that. ‘The market’ won’t go where it can’t make a profit – so allowing ‘the market’ to intervene in areas that it has already quite clearly stated that it won’t touch on the basis of the economics of existing broadband, let alone the high-speed variety, is, quite simply, not a solution at all.

I’ll leave Osborne to explain how a retail market share of broadband of 34% (DSL plus retained unbundled loops) and a number of unbundled local loops which is larger than those held by BT Retail, constitutes a monopoly.

Osborne’s reference to using the digital switchover portion of the licence fee to fund broadband expansion is also very interesting in the political context. This amounts to 3.5% of the BBC licence fee, while Digital Britain reported that the annual underspend in this fund is around £200m (while the government is currently proposing to use this towards its commitment of a universal 2 Mbps commitment by 2012). This part of the licence fee is also due to expire once the digital switchover scheme finishes in 2012.

So, Osborne now needs to do three things:

1. explain how the Tories will meet the commitment to a 2 Mbps universal service by 2012, since he is proposing to subsume the funds for doing so for other purposes

2. explain how the continuation of this additional fund beyond 2012 differs from what the government is seeking to do with the 50p/month landline duty (which the Tories have both derided and promised to end). Presumably, after 2012, this part of the licence fee could, otherwise, be returned to licence fee payers, either immediately or over time, or used to fund other BBC services. Given that the Tories are unlikely to be sympathetic to the latter, its explanation of why, in contrast to the former, it is retaining a specific earmarked duty for a different purpose is going to be an interesting one. As thinkbroadband.com comments, this is more or less ‘a shift in one type of tax to another‘

3. Given that Osborne was making clear reference to access speeds of 100 Mbps, which will require fibre being rolled out not to the cabinet but to the premises – a much more expensive form of roll-out – Osborne needs to define where the money is going to come from and, perhaps more pertinently, which investors he thinks might have sufficient scale to have that sort of cash available and under what conditions they might want to use it to fund next generation access. This could of course be a political reference to the ‘up to’ 100 Mbps speeds which could be delivered by fibre to the cabinet – but some clarity as regards whether he is thinking of fibre to the cabinet or to the premises would be welcome.

In the meantime, carry on scrabbling…

Hunting a policy on broadband

Jeremy Hunt, Shadow Secretary of State for Culture, Media and Sport, gave a speech last Thursday on the Digital Economy Bill. The audience seems to have been largely concerned with regional broadcasting media, given the title of the document under which the speech is filed, but he spent some of his time on Ofcom and on the landline duty aspects and it is these that I want to turn to here.

So, what doesn’t he like?

- the new requirement on Ofcom to promote investment: it’s another layer of regulation which doesn’t deal with the fundamental issue of how to stimulate private sector investment in next generation broadband.

- the landline duty: it’s another barrier to investment and is ‘ill-conceived, deeply unfair, and simply won’t do what the Government hopes it will’. (Nice use of the rule of three, there.)

On the first, the difficulty is that the existing sole statutory duty on Ofcom to promote competition has led to the situation we now have, in which an over-reliance on competition as the sole policy lever in regulatory terms has led to a distinct lack of investment: with a market dominated by competition and price, and consumer market sentiment as a result demanding more and more bandwidth at cheaper and cheaper prices, it’s no surprise that wholesale providers have been somewhat wary of being able to make a return on high-cost investments in new access infrastructure. Ofcom does indeed already have a responsibility to bear in mind the impact on investment of its decisions; promoting this to a formal statutory duty does provide it with another tool in its regulatory kitbag.

Its duty to report on the state of the infrastructure every two years will also help promote an infrastructure which is fit for purpose; Hunt didn’t mention this specifically, though he seems to be against reporting requirements in general on the grounds that they conform to over-regulation, so is probably opposed.

Secondly, the landline duty is a modest levy on all landlines which is intended to generate pump-priming finance from which to develop investment projects, on this sort of scale. It won’t raise enough to deliver next generation broadband by itself – that’s not what it’s designed to do – and neither will it ‘crowd out’ (if you believe this sort of economic doggerel) private investment – not least as a result of its lack of scale. Raising around £150m-£175m per year, it should, instead, act as an encouragement to tease out (and thus bring forward) private sector investment finance. You might disagree with the way it is being raised, but the seedcorn role of the duty in generating public-private investment schemes ought to be plain.

I’ll ignore the nonsense about households paying the levy three times (via phone, fax and broadband) as someone’s (im)practical joke (how many households really have different providers for these things? And do households get their broadband and their phones from different companies? No, not many, in these days of bundled, triple play services).

And what should DEB have done instead, in Hunt’s view?

- reformed the regulatory structure

- dealt with the chronically slow progress being made in investment in next generation broadband.

In principle, and put so succinctly, it’s hard to disagree with either. But Hunt is looking for regulatory reform which encompasses ‘light touch’ regulation (a somewhat discredited phrase, these days) and less of a micro-management role for Ofcom. This latter, by the way, is something of a straw figure since – at least in the telecoms arena – Ofcom’s role is far from capable of being described as micro-management. In short, he’s looking for deregulation, and it is this which is intended to deal with the slow progress in instituting next generation broadband.

Here, Hunt specifically refers to access to BT’s ducts as a means of delivering competitive investment via new market entrants. His problem here, however, is that Ofcom has already examined this issue and concluded that, while there is a role for duct access as a means of supporting competition to deliver high-speed broadband services,

At this time, access to BT ducts on its own does not appear to be an effective immediate solution to competition issues in fixed access networks. [para 1.30]

Apart from ducts then – what else does Hunt think will help encourage investment in high speed broadband? Er, nothing else, m’lud. That’s it (according to the speech). Rien. Nada. Oh – apart from optimism which, in the conclusion to the speech he refers to as being ‘the basis of our approach’.

So, that’s a policy based on duct access which Ofcom has already ruled out as a solution on its own – and a blind faith and crossed fingers that a deregulated market and ‘light touch’ regulation will provide. Nothing more specific in terms of speeding up investment – and certainly nothing about ensuring a cohesive deployment on an equitable basis, both to the nations and regions of the UK and socio-economically. (By the way, Mr. Hunt, (South) Korea is so much further ahead of the UK on these issues not because of private sector competition but largely because, as you’ll know from your visit, the Korean housing experience is dominated by densely populated residential apartment blocks as opposed to private houses. (Actually, it was planned that way – but that takes us on to a slightly different track). It is this style of housing that lends itself particularly well to generating decent investment returns).

We know to where the market will deliver if left to its own devices and it will have little to do with equity. It will focus investment on delivering on a multi-player basis to already well-catered for areas – and hang the rest (and hang BT too, as a supplier of last resort). That’s not a policy with a future, either for the nations and regions of the UK, or for those responsible for providing landlines. In comparison, DEB does provide some hopes that investment will be encouraged, both as a result of regulatory certainty, to which a statutory duty to promote investment will provide some further assistance; and as a result of the landline duty being used to provide seedcorn finance for local development projects. Knocking out these rational measures, and replacing them only with a discredited policy of deregulation, is a recipe for failure on broadband infrastructure which this country can’t afford.

TUC Recession Report No. 15

The TUC has just produced its latest Recession Report, accessible here at Nicola Smith’s ToUChstone blog posting. This is the penultimate in the series given that data shows the economy no longer to be contracting – so an official, if somewhat marginal, end to the recession has been achieved. (On this point, see also Adam Lent’s post on why the recovery has been so anaemic in the UK).

The headline data are that: 2.458m are unemployed (down on the month and on the quarter, but up by more than half a million on the year) – at a rate of 7.8% (a slight drop on the month and unchanged on the quarter, but up by 1.6 percentage points on the year). The employment rate of the working age population now stands at 72.4%, down by 0.1 percentage points on the quarter and by 1.7 points on the year. The headline figures are, once again, more positive than expected but evidence of a sustained recovery on the employment market is not yet here and long-term unemployment also continues to demonstrate cause for concern.

The second part to the Report continues the social theme of the previous edition’s specific area of focus, which looked at the effects of unemployment on physical and mental health, by looking at the other social effects of recession, including on poverty, happiness, family life, crime, drug and alcohol use and on the prospects for the children of unemployed people. Nicola had blogged previously on the question of how a ’social recession’ could be measured and had suggested that the view was, on the whole, satisfactory despite some areas of concern. Here, too, the report argues that, while the UK is weathering this recession rather better than those of the 1980s and 1990s, the negative social effects of rising unemployment will continue to cause damage for some years to come. An important lesson for those advocating harsh cuts to expenditure: cuts are not only economically regressive, they leave the social scars festering, too.

Not just a picture from my hols…

… but also a reference not only to this week’s welcome economic news but also to the TUC’s forthcoming Going Green at Work conference, taking place on 15 March and being chaired by Prospect’s own Paul Noon.

We chill aaht on iht…

Photo: Islas Canarias

For the next week or so. Hoping not to bump into the lovely Louise and Jamie, though…

EU hearing no picnic for Kroes

European Voice reported yesterday that Neelie Kroes, the Dutch politician who is currently EU Competition Commissioner and who has been nominated to head the new department of the digital agenda, has written to the European Parliament’s industry, research and energy committee to clarify points raised in her hearing, which took place on Thursday last week.

Kroes’s letter is, according to European Voice, intended to stave off concerns over whether she is sufficiently prepared for the job following the ‘disappointment and frustration‘ [registration required; limited viewing time] of the members of the committee over her performance. It has been reported that Kroes was ‘off her game‘ at the hearing, which was also reported as having been one of the tougher ones, no doubt prompted by Kroes’s own reputation, and that Kroes had done herself no favours by sticking to her desk at Competition since the announcement of the new Commission rather than on playing the political game. Kroes’s appearance before the parliament seems to have been marked by a broad-brush, with little details emerging other than a commitment to net neutrality and to free online expression, to tightening up Europe’s diverse online copyright laws and to building a single digital market, and to the principle of mobile roaming, but without a coherent legislative programme tying it all together. To be fair, the brief on the digital agenda is a new one. It has also been suggested that European People’s Party members have been under instructions not to sanction Kroes’s appointment until their own Commissioner nominees had been approved.

The committee has not written its formal evaluation and it has been suggested that Kroes will receive an invitation to a second hearing, likely to be held this morning at 11 am in camera although this had not been confirmed as of last night. Parliament was due to vote on the new Commission on January 26th, although this now looks likely to be postponed until the second week of February following the withdrawal from the process of Rumiana Jeleva, the much-criticised Bulgarian Commissioner-designate.

Haiti: trade union action

Amidst news that the death toll in Haiti may be as high as 200,000 people (over 70,000 people have already been buried), and that cruise ships have continued to find private places to dock just 60 miles from the earthquake zone, TUC Aid has launched its own appeal for funds for emergency relief. You can find further information about the TUC Aid appeal and a chance to donate online – via justgiving.com, so you can be sure that funds will find their way to where they are intended – here. Over 3m Haitian people are in desperate need of food, clothes, shelter and essential medicines and tens of thousands are facing their sixth night out in the open.

You can also find full news on what trade unions are doing in response to this disaster over at LabourStart.

Doesn’t he work for a trade union?

According to a survey on the state of technological knowledge amongst ordinary people, 10% of people on the streets of London believe Steve Jobs, chief executive and co-founder of Apple, to be a trade union leader. Other leading figures in the industry, including Sir Tim Berners-Lee, founder of the internet, also fared poorly (9% thought he worked for MI5, which would appear to reflect the pervasive influence of James Bond films: Bernard Lee was M (albeit of MI6) in all Bond films up to Moonraker), while the apparently inexorable rise of social media sites still meant that 11% of respondents couldn’t name a single one without prompting. Do check out the YouTube video on the survey link, by the way – especially the very last interviewee, in front of Westminster Cathedral: a ‘guess the title of his daily newspaper’ competition will follow…

Well, (a) it’s nice that trade unions still feature strongly enough in public life to make it on to these sorts of questionnaire; and (b) that people do still remember enough about trade unions for us to feature somewhere on their horizons. (Obviously, aside of the issue of entirely random answers that questionnaires sometimes generate.)

Perhaps it’s the name ‘Steve’ – a good, solid name befitting a trade unionist – which resulted in the mis-identification of Steve Jobs. Indeed, in Prospect there are quite a few ‘Steves’ amongst the union’s cadre of negotiations officers. I’m not sure that Apple is yet unionised so as to make Steve Jobs a credible choice for union leader, however – though the company does seem to have been involved in labour rights violations in the past…

Policy Exchange nonsense

Policy Exchange, a right-wing think tank interested in ‘free market and localist solutions to public policy questions’, which has the status of an educational charity, is promoting a new report on the future of broadcasting. The focus of the report is largely outside the main remit of this blog, but its recommendations do include the dropping of the 50p/month landline duty suggested in Digital Britain and the subject of recent BIS consultations (the author of the report – Mark Oliver, a media policy adviser, insists on referring to duty as the ‘telecom tax’, which I feel gives something away about the report’s intentions). In contrast, this blog has supported the principle of the duty.

[Edit 15 January: Liberal Conspiracy has a good blog posting on the rest of the report here].

The report’s recommendation on the landline duty – that it should be dropped because the case for building out high speed internet infrastructure to the whole of the UK is unproven and that, even if it was, it was likely to benefit the whole of the UK economy and thus should be funded out of general taxation – is fair comment. We’ve taken the alternative view that there are strong social justice, integrationist arguments in building out such a network outside of the major urban population centres, taking such access speeds ‘beyond the market’, and that there are also strong economic benefits to doing so as well, spreading economic development away from overheated areas. [15 January edit: Policy Exchange has form here too, having previously argued that regeneration programmes were doomed to fail in many areas and suggested that funds might be better used in encouraging people to move to other locations. Hat-tip: New Statesman]

Where the report overstays its welcome, however, as far as this blog is concerned, is on the costings associated with the duty. All on the same page of the report (p. 67), it persists in quoting a figure of £3.5bn as being the cost of ‘overall spending for Digital Britain’s broadband vision’ as well as being the costs of building out ‘high speed infrastructure to the whole UK’ and of ‘going from 60 to 90 per cent 50 Mbit/sec household accessability’.

All this is a bit confused (and, actually,  the language is all a bit breathless, too). I may be wrong, but I can’t recall that Digital Britain was ever this specific about the costs of its vision. (And the report doesn’t seem to reference where it believes this £3.5bn comes from – it just cites it as an assumption.). What Digital Britain does state is that the 50p/month duty will raise £150m-£175m per year (or, by the end of 2017, a total of a maximum £1.225bn, given a start date for the duty of 2011). This is around one-third of the cost of the duty apparently assumed by the Policy Exchange report. The Digital Britain assumptions are also commensurate with the £200m per year that would be raised based on Ofcom’s figures for the number of fixed landlines in operation (33.2m – see Figure 4.1) (there will be some exemptions from the duty, taking the figure closer to the Digital Britain estimate). This would thus seem to be authoritative.

It’s also worth pointing out that, back in 2007, Enders Research quoted a cost of £11.2bn as the costs of building fibre to the home to 90% of UK households (see the NGA briefing published by the Connect sector of Prospect, and repeated in the Broadband Stakeholder Group’s Pipe Dreams).

Neither can I recall Digital Britain talking about rolling out a specific 50 Mbps access speed right across the UK: it talks about rolling out ‘next generation broadband’ and refers specifically to Virgin Media’s trials of its 50Mbps cable technology, but it is not specific about the speeds of the fibre connections which will be the access route outside the urban areas of Virgin Media’s network. It could not be – these will vary, based on whether fibre is rolled out to the curb or to the home – and they could actually be much higher.

The political divide around the duty is a reasonably clear one – but it doesn’t help the essential clarity when numbers are apparently plucked out of thin air and, evidently, bear no relationship to the sums likely to be raised by the duty. A credible report – and conclusion on the issue of the duty – would seem to demand a little more preparatory homework first.

More evidence of improved outlook for pension schemes

The Pensions Protection Fund’s most recent update to its Index shows that the net deficits of UK defined benefit schemes now total £32.6bn – a huge improvement on the £92.5bn deficit it recorded for November, as well as on the £190.6bn deficit recorded for December 2008.

Reasons for this improvement were a 2% increase in the value of scheme assets as a result of rising UK and global equity prices, as well as a 5.6% fall in the value of scheme liabilities as a result of higher gilt yields, with these now showing a value higher than at any time during 2009.

£32.6bn is still a sizable sum, while 73% of all schemes are still showing a deficit (on the measure that the PPF uses). So there remains a problem which needs to be tackled. The size of the drop in one month shows the huge amount of volatility that is attached to any assessment of scheme valuations at the minute – as well as the level of opportunism which might be associated with short-term decisions recently taken on what are long-term funds. But just to put the figures in context, the net deficit relates to a total asset base of pension schemes of some £872.7bn, compared to liabilities of £905.2bn – which indicates that schemes are, in total, 96.4% funded on the PPF’s measure.

That looks a lot better than it has done recently.

T-Orange JV notification lodged with EU

Some four months after the joint venture was announced (8 September), and more than two months after all the companies’ own paperwork was complete (5 November), Deutsche Telekom and France Telecom have finally got around to notifying the EU authorities of the proposed JV of their UK interests (note: the EU page has almost no case documentation).

The EU has a provisional deadline of 15 February to make a ruling. Given that the two companies are hoping that the JV will be approved ‘in the first half of 2010‘ (a statement made also in the initial presentation of the proposal), this lengthy delay in filing this notification will require some explanation.

Interestingly, The Times has reported that the UK’s Office of Fair Trading is to review the submission made to the EU authorities ‘over the coming days’ (the OFT website is currently silent on the issue) ahead of a consideration as to whether the OFT should request that the proposed JV be referred to itself. This would appear to be an unusual move – a sign of the intense interest in the JV’s implications for UK competition policy (as well as for the lifelong emphasis by the UK communications regulatory authorities on establishing competition in the mobile sector).

A communications industry at least tinged with green

A welcome to Green Touch, the communications industry’s inititiave to reflect a green agenda in the level of power consumption taken up by communications networks, launched yesterday in London.

The initiative is led by Bell Labs, the R&D unit of Alcatel-Lucent, and comprises 15 founder members drawn both from the operator community, including AT&T, China Mobile, Telefonica, Portugal Telecom and Swisscom, and research organisations. Membership is open to all and Green Touch expects to welcome other industry players. Its agenda is driven by a number of issues:

- communications networks are eating up more energy, and at a faster pace as demand rises for capacity as a result of the huge rise in digital information being uploaded and shared

- today’s networks use more energy than they need to: if left unchecked, energy usage is projected to double over the next ten years

- demands on information and communication technologies are increasing as organisations look to tackle their own carbon footprint by making more use of ICT in terms of remote working.

In contrast, Green Touch’s aim is to research new technologies capable of bringing about a 1,000-fold reduction by 2015 in the carbon emissions created by the usage of telecoms networks today – a target intended to be practical although the industry believes that a reduction of ten times even that amount is possible. The 1,000-fold reduction is equivalent to 7.8GTn of CO2, or 15% of the total world emissions predicted by 2020, according to Telefonica.

Little is yet known about the initiative, apart from its aim to reduce power consumption, and the details of the project remain somewhat vague. Overall, the approach and the aims are welcome – it will assist the environment, improve expertise both at corporate and individual levels and it will also help support jobs in the industry. All these provide reasons enough to be supportive.

Nevertheless, how far the industry is prepared to go actually to deliver in practice the laudable aims of the initiative, in terms of the R&D investment that it will require and the level of patience that may be required before that investment secures a return, is, as always, a key point. Ben Verwaayen, chief executive of Alcatel-Lucent, spoke of the initiative taking up, in cash terms, ‘tens of millions’; this is, by itself, unlikely to allow the industry to identify itself with a green future: ‘more’ is clearly likely to be required and that, in turn, given the social benefits such technologies might bring, is likely to require government involvement. The French National Institute for Research in Computer Science and Control is one of the founder members and, while DECC has been verbally supportive, it has as yet issued nothing specific in terms of communications, still less more tangible forms of support. For a government looking to replace an economic over-reliance on the financial services industry, and with its own clear commitment to a green agenda, that is a gap which needs to be filled.