Connected Research

Union policy research in the 21st century

Archive for May 2009

May I be the first to say…

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… phew, what a scorcher!

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Written by Calvin

30/05/2009 at 11:52 am

Ofcom reviews BT Undertakings

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Ofcom, the regulatory authority for the UK’s communications industry, has produced two linked pieces of work on the Undertakings that BT gave in 2005 concerning its internal structure.

The Undertakings concerned the commitments given by BT to equivalence of input (by which BT would provide wholesale network services to all retail providers on a non-discriminatory basis), requiring in turn the functional separation of its delivery and systems functions (leading to the creation of Openreach). This was a solution to the competitive concerns identified by Ofcom which, otherwise, would have led to a Competition Commission reference.

The first piece of work is a review by Ofcom of the factors which led to the Undertakings being given – its third. It believes that the net effect of the Undertakings to date has been positive, but that it is at a critical juncture at which next generation access and core networks are coming on stream which may change the validity of the Undertakings. Nevertheless, for the time being, Ofcom believes that the Undertakings have delivered ‘substantial’ benefits to retail and wholesale customers to date and thus it remains of the view that ‘the Undertakings are an appropriate and comprehensive solution to … competition concerns.’

There nevertheless remain concerns over systems issues and the management platform over which Openreach delivers the equivalence of input obligations to all communications providers.

Further work on these issues is the subject of the second piece of work here, a consultation document on re-prioritising parts of the Undertakings which depend on the programme of separation of information systems between Openreach and other parts of BT. This was originally required so that other BT businesses would not be able to access information concerning Openreach’s provision of services to other communications providers and was due to have been achieved by June 2010. For new systems put in place subsequent to the creation of Openreach, this has been simple since they have been designed with separation in mind, but problems remain over meeting the deadlines concerning legacy systems, specifically the migration of BT’s legacy retail customer records to systems which are separate from Openreach.

BT has consequently requested a re-prioritisation of these obligations as a result of the increasing pressure that its systems resources have been coming under. Ofcom, which has been working on these proposals since early December, is thus proposing to relieve BT of the deadlines originally set out in these aspects of the Undertakings, in return for ensuring that Openreach delivers, as a part of the Undertakings, a set of new service developments in addition to developing enhanced functionality for existing ones.

If the proposals are supported, BT would remain committed to full physical systems separation, albeit not to the original timetable, but would gain flexibility to continue with the separation of legacy systems according to more pragmatic considerations but without a finite date. BT would also have to prioritise the separation of customer records above other aspects of separation, a form of separation which, Ofcom concludes, is particularly important in addressing potential competition concerns. Finally, the remaining milestones for BT to migrate its installed customer base to equivalence of input products would be removed from the Undertakings and replaced by new progress milestones based on the percentage of customers that have been migrated to equivalence of input products both by June 2010 and December 2012.

Ofcom is confident that its proposals do not depart from the aims which led to the establishment of the Undertakings and are consistent with the outcomes that the Undertakings set out to achieve; in particular, that they maintain a continued path towards functional separation and to the delivery of equivalence of input products albeit over a longer timescale for some systems and products. BT will gain from being able to be more flexible in the deployment of its development and capital resource, essentially by no longer having to commit systems design specialists to working essentially on unproductive work, allowing them instead to work on more rewarding, fresh design projects.

Connect will be considering further the issues raised by the consultation, which closes on 10 July.

Written by Calvin

29/05/2009 at 6:06 pm

Posted in Telecoms regulation

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BT board pay

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The publication of the full BT Report and Accounts for 2008/09 brought with it details of the company’s remuneration policy towards its executives: a move which will be of great interest to Connect members this week given what is happening to the 2009 staff pay review.

The press have had something of a field day: see, for instance, The Guardian here and here. The company’s granting last June of a 700,000 Euro ‘retention award’ to Francois Barrault, former head of the company’s troubled Global Services unit, only to be followed four months later by asking for his resignation, accompanied by a handsome pay-off worth £1.6m, was perhaps not the smartest of things to do. The company’s former chief executive, Ben Verwaayen, whose departure looks to have been done with Teflon timing, also pocketed a £300,000 cash bonus in respect of his two months work for BT this year as well as a contractual termination payment of £700,000, even though he left the company voluntarily. BT executives also received the usual range of fees and allowances the presence of which is, in times other than these, somewhat less remarkable.

Such excess is an easy target, however. The serving set of executives appear to have adopted, if not quite sackcloth and ashes, then at least the appearance of a, perhaps relative, ascetism: the second stage of previously agreed wage rises (in 2007/08) to take executives to the ‘market rate’ (interesting notion, this one) is being deferred in the light of the ‘current difficult market and trading conditions’, while increases in on-target bonus levels due this financial year have been put back; the bonuses that are being paid (to three executives) are being paid not in cash but in the company’s shares, which have been experiencing a rather declining value relative even to that of other shares; and Hanif Lalani, the company’s former finance director who replaced Barrault at Global Services in October, has declined any bonus at all.

The accounts contain an interesting reference to executive remuneration taking into account the pay and employment conditions of employees elsewhere in the group: a reference, no doubt, to the pay freezes being put in place for staff. Nevertheless, it is only a partial reference. Being paid in shares or no, the three other executives (chief executive, finance director and Retail director) are still receiving a formal annual bonus, in addition to deferred share-based incentives, not the ‘recognition awards’ being paid, outside Global Services and on a reduced (compared to bonuses in previous years) and currently rather opaque basis, to Connect members. Subject to continued employment in three years time, those deferred bonuses which have been granted to executives this year will also become available. So there are still different rules for the select few, then.

Shareholders will be voting on the remuneration report at the AGM on 15 July.

Written by Calvin

28/05/2009 at 10:48 pm

Addressing the problems of middle income Britain

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The TUC has published a new pamphlet in its ‘Touchstones’ series looking at the fortunes over the last thirty years of what it refers to as ‘middle income Britain’ (a concept quite distinct from that of ‘middle Britain’).

The pamphlet, Life in the Middle: The Untold Story of Britain’s Average Earners, can be accessed via the TUC’s Touchstone blog, where you can also assess where your own income lies in relation to middle income Britain, via the middleBritainometer (hint: the central measure is gross earnings for all jobs!).

Research for the pamphlet, written for the TUC by Stewart Lansley,  is based on the results of a survey of 1,195 adults conducted by YouGov for the TUC.

Charting the progress of Britain from a ‘pyramid’ society (in the immediate post-war years) firstly to a ‘diamond’ one (by the end of the 1970s) and now to an ‘onion’ one, marked by the rise of a small group of the super-rich and a much greater concentration of the population by income in the bottom half of the distribution, the pamphlet argues that there are two changes which responsible for this economic re-positioning:

– a steady rise over the last thirty years in the gap in earnings between the top and the bottom. At the same time, there has been a steady fall in the share of national output taken by wages, especially in the bottom half of the distribution.

– a decline in relative social mobility in this period even although all households enjoy greater absolute opportunities.

These changes took place largely in the part of this period before 1997, but successive Labour governments have been unable to reverse them.

Pointing out that middle income Britain is likely to include a generous proportion of swing voters, as well as being more pro-state and strongly supportive of government action to tackle inequality, Lansley argues that there is a need for a new set of government goals and policies, based on five areas of action:

– setting a clear series of time-bound targets for reducing income and wealth inequalities, alongside poverty reduction targets

– tackling the ‘cycle of privilege’ via the setting of targets in universities and in key professions for the proportion of entrants with a comprehensive education and/or a low income/middle income background

– establishing an Inequality Commission to determine, monitor and control pay relativities and wider inequalities

– reinstating a commitment to the principle of progressive taxation and raising a higher proportion of tax revenue from a reformed system of capital taxation

– using the proceeds of this to build the asset base of those in the bottom half of the distribution, for example by providing more bursaries at top universities and companies.

Lansley also argues that a higher proportion of the workforce needs to be unionised, on the basis that strong trade unions and strengthened bargaining power provide the most effective defence against wage slippage. Such a conclusion is no doubt right, albeit somewhat unfortunately timed – but it is one that is much easier to say than to achieve, as experience of trade union recruitment and retention since 1997 shows, despite the shifts in the atmosphere, or in the ‘mood music’, that accompanied the efforts of the first Labour government in this direction.

Lansley’s list is clearly aimed at achieving long-term social change and it is a welcome contribution. Most Connect members are likely to find themselves with earnings levels above those of middle income Britain, but that doesn’t detract from its importance. It is not intended as a manifesto for the next election but it is one around which a reformist government committed to achieving social justice – and, indeed, to getting back to politics in these times – might well seek to orient itself.

Written by Calvin

28/05/2009 at 12:37 pm

Why don’t people save in pensions?

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One-half of all people are not saving in a pension scheme, according to a survey of 1,358 adults conducted for the BBC by GfK NOP. The proportion slides to just 36% of those aged under 30, but includes 45% of 41-60 year olds some of whom, according to the report, are beginning to realise the need to work beyond 65 as a result of the unreliability of their pensions savings.

Amongst the under 30s, commonly cited reasons were affordability, not knowing how to start a pension or retirement being too far away to plan for. Nevertheless, half thought that they would still have a comfortable retirement – perhaps a reference to putting savings into housing, or perhaps a belief that there was still time to save, or that the state would anyway provide.

The reasons why people don’t save in pensions are pretty well-rehearsed but usefully summed up by Citywire’s Morning Line as:

– people are too busy spending, not least when the economic boom years have been led by consumer expenditure

– people don’t trust the financial services industry as a result of some highly publicised situations which do much to discredit it

– a perception that the pensions system is unfair and provides poor value

– there isn’t enough cash to save given other priorities

– life is too short.

Well, useful apart from the last, perhaps; the other reasons are valid even if some are a little over-blown for the purposes of the Citywire blog.

Pensions saving in an established workplace situation, which is where most Connect members come from, is a little easier than elsewhere: you have a ready source of opinion and advice, which is especially important given the complexity of, and confusion over, pensions schemes; the schemes themselves tend to be adequate; money comes straight out of salary so its absence from the wage packet doesn’t have so much of an impact; and everyone else is doing it. Of course, uncertainties remain even then.

Outside this sort of situation, where there is less of a tradition of pensions saving and where peer pressure is less because fewer people are saving for their retirement, things are much more difficult. Stories of people deciding that they’ll get by in retirement without saving, or investing in property instead, quickly get around and quickly become persuasive.

Reasons to invest in pension schemes remain cogent, among them: your own savings tend to trigger a contribution from the employer (occasionally healthy ones); schemes offer valuable death-in-service benefits and, in a good defined benefit scheme, ill-health retirement protection; and your contributions are tax deductible, so your pensions savings cost you less than the value you gain from it. Arguments that we need to move towards a better mix of work and retirement as a means of covering greater lengths of time in retirement are sound – except when they are a means of excusing a lack of investment in pensions at the appropriate time. Fundamentally, people who save throughout their working life will be better off and more able to enjoy their (increasingly long) years of retirement.

The difficulty remains that, with fewer and fewer people saving (or saving adequately) for their retirement, the greater the burden that is going to fall on the state – that is, on tomorrow’s workers. This has been the trend for some time but the policy tool for correcting it – the system of personal accounts – is still three years away and, even then, it may not do more than tinker around the margins. In terms of public policy, we may need to do more.

Written by Calvin

27/05/2009 at 3:52 pm

Posted in Pensions

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BBC survey on broadband notspots

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The BBC has today published the results of a survey it has commissioned into broadband ‘notspots’ – areas where broadband internet access cannot be delivered, or where it runs very slowly.

According to the research, some 15% of UK homes – three million in total – have broadband speeds which are lower than 2 Mbps, the figure suggested in the Digital Britain interim report as the one to which the UK might aspire to reach by 2012 on the basis of a new universal broadband service commitment.

The research, carried in conjunction with SamKnows, a provider of data on broadband availability and performance, identified that ‘notspots’ were not necessarily found just in rural areas but that there was also a high incidence in more urban areas. The outcome of the exercise has been to provide an early mapping of where 2 Mbps cannot be obtained and, therefore, the sorts of work, and investment, that will be required to deliver the 2 Mbps commitment.

Connect and the CWU, in our joint submission to Digital Britain, strongly supported the attempt to encompass a Universal Service Commitment in broadband, but called for it to be characterised by a minimum speed of 2 Mbps, at the point of access by the consumer, and that it should be regularly reviewed.

The reference to point of access by the consumer is key: contention rates, sparked by high levels of traffic on the network, often mean speeds much lower than the headline. A line test of the speed on my line (via an old link on the BBC page reporting this story) at 1.30 today revealed a line speed in my rural, but decently large Perthshire village (consisting of around 900 residents), of 1.9 Mbps – not too shabby, and not far from the commitment. However, a trial 9.9Mb file download took over 30 seconds – an average speed of less than 350 Kbps. On a relatively small file size, this proved not to be too frustrating a delay, but larger and larger file sizes, or streamed video, will quickly become so unless these rates are raised.

From a policy point of view, there are several issues to note here. Firstly, Digital Britain was careful to phrase its suggestion of a commitment to 2 Mbps in the context of speeds ‘up to’ this level. We criticised this in our response as too weak, since it may be met all too easily at more or less current levels of broadband. The three million homes that are unable to get speeds of 2 Mbps may well fall rapidly in number if the test is broadband ‘up to’ 2 Mbps.

Secondly, contention rates need to be tackled if a commitment to 2Mbps is to be delivered in a meaningful way, i.e. at the point of access by the consumer. If my experience today is anything to go by, then there are actually a lot more than three million homes who cannot get 2 Mbps (in the middle of the day).

Thirdly, we do have a recession – and we are looking to private (or privatised) companies to deliver what is, ultimately, a public policy initiative. Their priority is to their shareholders and, in the case of BT, shareholders are looking for a medium-term cut-back in capital expenditure as part of the company’s general cost savings. Connected Research has already blogged about BT’s welcome and stepped-up commitment of £1.5bn of funds in investment in NGA, although last week’s Ofcom determination of the pricing framework for Openreach did attract the company to mutter that the ‘tentative’ steps Ofcom had taken were insufficient and likely to ‘create real disincentives to investment’.

We can cajole, beg, persuade, set the right regulatory regime… to encourage BT to do what we want it too but, ultimately, we lost the right to tell BT what to do when it was privatised. It seems increasingly likely that investment in NGA to deliver the speeds we want, and at the timescale we want, will be controlled by what we – as taxpayers – are prepared to contribute to the cost of it. The role of the public sector in delivering NGA is a debate that is far from over.

Written by Calvin

27/05/2009 at 2:25 pm

Equitable Life holders gain right to full hearing

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EMAG, the independent group representing Equitable Life policy holders, has won the right to a full hearing over what it claims as the government’s failure to offer full compensation after Equitable Life early collapsed in 2000.

In July 2008, Parliamentary Ombudsman Ann Abraham reported ten instances of maladministration from a range of government departments, some of which the government disputes, and called for a compensation scheme for more than a million policy holders suffering large cuts to the value of their pensions as Equitable Life struggled to stay solvent. The response of the government has been to offer limited, discretionary payments to some of those worst affected on a hardship basis and it has commissioned Sir John Chadwick, a former High Court judge to identify those who may be covered by these arrangements.

The case will examine what EMAG claims is the Treasury’s failure to act on the Ombudsman’s recommendations as well as its ‘continued intransigence’ in the matter. The main aim of its case is to challenge the ‘lack of cogent reasons’ for the Treasury’s refusal to accept some of the Ombudsman’s findings, but EMAG is also challenging the narrow remit given to Sir John.

Written by Calvin

27/05/2009 at 1:18 pm

Posted in Pensions

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