Bradshaw confirms legislation to tackle illegal downloading

Ben Bradshaw, Culture Secretary, has confirmed in a fringe meeting at the Labour Party conference that legislation to tackle illegal downloading would be included in the next Queen’s Speech.

Bradshaw, sharing a platform with Feargal Sharkey, former Undertone and current chief executive of UK Music, directly referred to another possible way of tackling the problem in addition to that of cutting off access – that of restricting the access speeds of file sharers. ‘Squeezing’ the bandwidths of those involved is also the agreed view of UK musicians who last week, in a meeting convened by UK Music, reached a compromise position on the issue after a rather public debate between two camps of them. Capping, or shaping, broadband speeds or data volumes is one possible measure included in the Department of Culture Media and Sport consultation on illegal peer-to-peer file sharing, which closes today, and has the advantage of ensuring that the net access of illegal file sharers continues while addressing the problem of illegal downloading. Back in August, BIS specifically inserted into the consultation the possibility of cutting off access completely, in an intervention regarded as the contribution of man-of-the-moment Lord Mandelson, while France has also recently approved a new law cutting off access on a ‘three strikes’ basis (see further below).

Capping speeds or volumes is clearly not a perfect remedy since legal downloads – e.g. via iPlayer – will also involve high traffic volumes as well as requiring high speeds and allowing continued access to legal downloads might well be a legitimate part of the ‘rehabilitation’ of those found to be sharing files illegally. More prosaically, just how effective speed squeezing might be, given the contention-based problems which affect the network currently, is a fair question and we might well wonder whether anyone thus affected would actually notice that their speeds had been throttled back. Nevertheless, since this is the agreed position of UK Music (although illegal file sharing clearly does not only affect musicians), and given the shared platform between Sharkey and Bradshaw in Brighton this week, this is likely to be the preferred solution which eventually makes its way into the Queen’s Speech.

Its likely effectiveness in dealing with illegal file sharing, which is a problem area given technological advances, is unclear – but potential difficulties in this are evidently not a reason for inaction and it remains right to consider how policy can be shaped to tackle the problem. Copyright exists for a valid reason – well defended by Sharkey recently – and getting people to understand why, in the file sharing age, is an essential activity in ensuring it retains its relevancy.

RSA report illustrates impact of pensions management costs

Pensions for the people: addressing the savings and investment crisis in Britain, a report by David Pitt-Watson, founder of Hermes Equity Ownership Services, for the Royal Society of Arts highlights (among other things) the effect on pensions pots of annual management charges.

The report starts from the perspective that the investment chain is currently failing as a result of high investment management costs and inadequate corporate governance and makes proposals for how these can be addressed within the framework of the government’s pensions reforms. As Pitt-Watson points out, the imminency of the reforms – starting in 2012 – as well as signs that the opposition is currently reviewing its policy on them adds to the urgency with which the problems he highlights must be addressed.

Certainly, the running costs of private pensions are little understood. Pitt-Watson points out that the annual fees charged to a private pension is somewhere in the region of 1.5% of the total balance of the fund in each year (the Pensions Commission calculated slightly lower, at 1.3%). This means that, over the course of the average lifetime of a pension, some 40% of the total pot goes into costs and charges, meaning a hefty reduction in the size of the annual pension that such a pot will secure: Pitt-Watson’s calculations suggests a reduction from an annual pension of £16,080 (in the unrealistic scenario of there being no charges at all) to one of £9,901. In contrast, a pension of £13,657 could be achieved at a cost structure of 0.5% and one of £14,756 at 0.3% – a significant increase in return for no more investment by the individual pensions beneficiary concerned and with a knock-on effect on the extent to which future generations of retired people are going to be reliant on the state.

So, it is clear that personal accounts must have low charges – and also that employees with DC schemes more generally ought to pay much more attention to the cost structures charged to their schemes.

Through auto-enrolment, much of the on-costs of marketing and product set-up are taken out, meaning that personal accounts can be established on the basis of a much cheaper cost structure. The Pensions Commission suggested that an annual management charge of 0.3% was achievable; the government’s response agreed that it may be possible to achieve an AMC at a rate of 0.5% of funds invested in the short-term and below 0.3% in the long-term.

Pitt-Watson’s suggestion for citizen investor funds – to tackle the corporate governance inadequacies – have similar cost structures underpinning them but he does suggest increasing the £3,600 maximum amount that can be saved in personal accounts – a proposal which the TUC has also previously supported. This he suggests would facilitate the creation of collective investment vehicles of sufficient scale that would essentially entail the creation of major new market players committed to good long-term corporate governance.

With the government having previously suggested that the attainment of a replacement rate of two-thirds of income could be achieved within the £3,600 annual limit on contributions, the personal accounts system may not see the establishment of pensions institutions of the sorts of scale that Pitt-Watson is seeking as regards the corporate governance aspects of his report, but continued industry support for lower cost structures is the one that will deliver the most practical benefits to ordinary pensions savers.

TUC’s 11th Recession Report

This was published today and can also be accessed over the usual route via the TUC’s excellent Touchstone blog.

The headline figures from the brief are that ILO unemployment now stands at 2.47m (7.9%) and has risen for 14 successive months. It now stands 743,000 people higher than at the same quarter one year ago. Some 560,000 people have now been out of work for over one year. Meanwhile, the population in work stands at 28.9m – representing an employment rate of 72.5%, a decrease of 2.1 points on the figure one year ago.

The Report also includes some very interesting data on out of work benefits with which to respond to right wing commentators, as well as on lower-paid workers which is the group hit hardest by the recession.

The special commentary this month is on the adequacy of benefit rates for unemployed people. Starting from the perspective that Jobseeker’s Allowance is lower today relative to average earnings (it’s just 10%) than was the case for unemployment benefits in the 1980s (c. 17%) and 1990s (c. 15%) recessions, the TUC is renewing its call for an increase in JSA to at least £75 per week (a £10 increase). This is where JSA would now be if the incoming Labour government in 1997 had re-introduced the informal link between unemployment benefit and movements in average earnings abandoned by – yes, you guessed it – in 1980. The link existed for a very valid reason – it ensures that people out of work over a period of time do not lose relative ground on those remaining in work, thus holding back the growth of inequality given the obvious links between existence on benefits and families in poverty.

DWP announces transitional regime for 2012 pension reforms

The DWP has launched a consultation exercise, Workplace Pension Reforms – Completing The Picture, surrounding the introduction of a set of regulations due for 2010 and concerning the 2012 pensions reforms.

The 2012 pensions reforms refer to the introduction of the system of personal accounts for those who don’t otherwise have access to an occupational pension scheme, mandatory for employers unless individuals choose to opt out, and based on a minimum employer contribution of 3% (and a total of 8%, with an additional 4% coming from employee contributions and the other 1% in the form of tax relief).

Key amongst the suggestions the DWP is making in the consultation is for a staged implementation of the introduction of personal accounts. Starting in 2012, employers will be introduced on to the system over a period of three years, ranging from large employers in the first place to the smallest ones by the end; and will, during that period, make contributions of no more than 1%. Once all employers have been introduced to the system, the employer rate will increase firstly to 2% and then, one year later, to 3%.

To put a timeline on this, employers will be introduced to the system between 2012 and October 2015, at which point the rate will rise to 2% and it will not be until October 2016 that the system will be in its ‘steady state’ with all employers paying 3%.

The consultation is a large one and needs to be digested properly, but my initial reaction is one of disappointment. The reason for the staged process is the load at key points on the key delivery agents – largely, The Pensions Regulator and the Personal Accounts Delivery Authority – together with employers being likely to leave participation until the last possible moment, becoming unmanageable. This is perhaps an understandable perspective but, at the same time, the system of personal accounts was suggested in May 2006 and subject to a further consultation in December 2006. The Personal Accounts Delivery Authority was legislated for in the Pensions Act 2007, and had its remit broadened in the 2008 Pensions Act which also introduced the notion of auto enrolment on the basis of minimum employer contributions. This implies – provided there is no further slippage – a period of introduction lasting 10 years from gestation to completion (actually, 10 and a half, given the 1 October anniversary dates introduced in the guise of ‘better regulation’). Two whole parliaments.

This is clearly an important and complex reform and the time is perhaps not the most propitious. I’m sympathetic to the notion of easing workloads that could be tough to manage. But 10 years? 8 years from the last piece of major legislation? 6 years from the date of the Regulations? Just how long can it take for systems to be established and for employers to get used to the idea?

The reform has all-party support so, unless that consensus is broken, the reforms will survive any change of government in the next election (and in the one after that…). However, I would like to have seen a quicker (much quicker) period of implementation given this major piece of reform aimed at extending the principle of occupational saving for retirement. In the meantime, it looks a complete victory for any strategy of kicking the notion into the long grass until it really has to be dealt with – and this level of capitulation to is perhaps the most disappointing thing of all.

TUC joins lobby for a jobs G20

TUC General Secretary Brendan Barber is joining a fifty-strong lobby by union general secretaries from around the world of world leaders in Pittsburgh. The aim of the lobby, which will involve several meetings with heads of government and global institutions, will be to argue the point that Friday’s G20 summit should be a summit for jobs, aimed at helping people survive the recession and overcome poverty by facilitating a return to decent work offering good wages.

The ITUC argues as part of the research for its Pittsburgh Declaration that the global crisis will have cost 59m jobs by the end of the year – equivalent to the whole population of the UK – and that unemployment across OECD countries could reach 10% in 2010, and rise still further into 2011. Furthermore, it could lead to 200m more people falling into poverty. In this context, it is unarguable that the G20 must address the need to create work if economic recovery is not to stall as a result of a lack of demand.

The union lobby is a useful reminder of two things:

– that, whatever the technical, economic definitions of recession related to GDP, a recession continues while people are losing jobs – and that this is likely to be for some time after the recession has technically ended

– that an ending to the crisis does not mean an end to discussions about what caused it, from the perspective of preventing it from happening again. In contrary to any quick return to ‘business as usual’, economic policy remains very much a contestable area of public policy. As Barber argues:

Governments need to be talking to employers and to unions – not just when there’s a crisis, but to stop the next crisis from happening. We need millions more green jobs, tougher rules on top bankers’ bonuses, and a fairer global economy – and millions of people around the globe will be looking to Pittsburgh this week for just that.

DPI and net neutrality

An interesting aspect to the net neutrality debate in the US, about which I blogged a couple of days ago, is how internet service providers know which traffic to prioritise so as to manage the load on the internet at peak times.

The naive assumption might be that they monitor particular servers, or use of particular sites, and then throttle that traffic back – and some might well do it this way. At least Comcast amongst US ISPs, however, uses Deep Packet Inspection [registration required; limited viewing time], which brings a whole new aspect to net neutrality: that of online privacy. Deep Packet Inspection, in the definition of online privacy campaigners, is akin to post officers opening your Royal Mail envelopes and examining the contents before handing you your post. To extend that analogy, DPI allied to traffic management measures is akin to your first delivery post being opened, the postal delivery officer saying to you ‘Oh, I see you’ve got some pretty big files in there – you can’t have it now but I’ll bring it back when I come back with second delivery’ [or tomorrow, for those who don’t get second post].

So, Comcast knows whose traffic to throttle back not because it has a general approach to the management of traffic to and from particular sites but because it knows you, as an individual, are downloading a file from the computer of someone on the other side of the world who you’ve never met – and it knows that because it has examined your communications in detail (and then sidelined it in terms of priority).

The above link talks in general about companies offering DPI services not having actively marketed their offerings in the US since Comcast was cited for its traffic management last August – but having concentrated on Europe and the Middle East. Should the net neutrality debate cross to Europe – as some have suggested it might – this is an aspect that campaigners will have to be aware of – and not only then, if DPI companies are already actively marketing in Europe.

This tying up of DPI and online privacy with net neutrality casts a dangerous aspect to the debate. Traffic management measures (to paraphrase what I argued earlier) are probably a necessary evil, currently – but not at the price of online privacy. If ISPs must manage traffic to ensure that too-thin pipes don’t fall over under the weight of our net usage, how they do that must not compromise the privacy of your online communications.

Broadband levy back on track

The BBC website today is reporting that Stephen Timms, the Minister for Digital Britain, has told a meeting organised by the British Computer Society that the 50p month broadband levy, designed to raise funds to assist with the roll-out of broadband to areas which, left to its own devices, the market would not supply, would be law ‘before the next election’.

This is in contrast to previous rumours circulating during August that the levy was to be dropped (see earlier post).

Despite likely Conservative opposition, the levy would be part of a forthcoming Finance Bill on the basis that:

We want to make high speed networks nationally available. The next-generation fund will help that and we will legislate for it this side of a general election.

Connect supports the concept of the levy on the basis of the need to extend high speed broadband services throughout the country on a socially cohesive basis, although we do have some comments to make about its coverage  and dimensions.

A copy of Timms’s remarks is not yet available on the BIS website, nor is there any reference to his remarks, or to the meeting concerned, on the BCS website.

France reaches agreement on ‘three strikes’ law

The French parliament has given its final approval [registration required; limited viewing time] to the so-called ‘HADOPI’ bill which will cut the connections of consumers who are illegally downloading content from the internet. The bill is a revised attempt to tackle the issue following its role in the derailing of the EU’s recent telecoms regulatory package and also the decision by the French constitutional court that the ‘three strikes’ approach was illegal under French law as it did not entail a legal procedure.

The bill has the backing of the French music and film industry, but has been opposed by some groups pointing out that it did not give alleged pirates enough recourse to challenge accusations and arguing that continued innovations would make it possible for illegal downloaders to avoid detection anyway. The revised version of the law is tough, with some commentators suggesting that the legal procedure involved at the third stage is very ‘light touch’, requiring little more magistrate approval of an order drafted by HADOPI. An internet ban of up to one year may be the result or, as was possible under existing legislation, a fine of up to €300,000 or a two-year jail sentence while account holders guilty of allowing a third party to use their connection to download illegally could face a €1,500 fine and a month-long suspension.

In the UK, the music industry is itself somewhat disunited as regards the issue of illegal downloading, but BIS has launched a consultation on the issue following the references to the need to tackle the problem of illegal downloading in Digital Britain and recently – in an undated statement – has revising its thinking mid-consultation to include a power for Ofcom to oblige internet service providers to suspend the accounts of persistent infringers (the main consultation can be found here).

BIS is careful to state that the uptake and use of internet services remains essential to a digital Britain but that it is necessary to consider adding suspension to the list of measures that could [BIS’s own emphasis] be levied on persistent infringers, with at least an eye on technical innovations that might assist people avoid detection.

What content generators (artists, songwriters, film makers) choose to allow to release on a free download basis to promote themselves and their work is fine – but they do need to be protected against the consequences of the illegal downloading of copyrighted material on a commercial or pseudo-commercial basis. Inclusion of the power to suspend the internet access of persistent illegal downloaders is a proportionate step, provided of course that the power is properly exercised and that such exercise is regularly monitored.

Adair Turner – FSA heretic

Selected extracts from Adair Turner’s Mansion House speech given last night:

‘…Hundreds of thousands of British people are newly unemployed; tens of thousands have lost houses to repossession; and British citizens will be burdened for many years with either higher taxes or cuts in public services – because of an economic crisis whose origins lay in the financial system, a crisis cooked up in trading rooms where not just a few but many people earned annual bonuses equal to a lifetime’s earnings of some of those now  suffering the consequences.  We cannot go back to business as usual and accept the risk that a similar crisis occurs again in ten or 20 years’ time.

We need radical change.  Regulators must design radically changed regulations and supervisory approaches, but we also need to challenge our entire past philosophy of regulation…

… not all financial innovation is valuable, not all trading plays a useful role, and … a bigger financial system is not necessarily a better one. And, indeed, there are good reasons for believing that the financial industry, more than any other sector of the economy, has an ability to generate unnecessary demand for its own services – that more trading and more financial innovation can under some circumstances create harmful volatility against which customers have to hedge, creating more demand for trading liquidity and innovative products; that parts of the financial services industry have a unique ability to attract to themselves unnecessarily high returns and create instability which harms the rest of society…

… So the FSA, on behalf of society, must consider whether the financial services industry is delivering its vital services in an efficient and risk-controlled fashion… [This]… impl[ies] an important and profound shift in regulatory philosophy…

… It does mean that the top management of banks… need to operate within limits.  They need to be willing, like the regulator, to recognise that there are some profitable activities so unlikely to have a social benefit, direct or indirect, that they should voluntarily walk away from them.  They need to ask searching questions about whether the complex structured products they sold to corporate and institutional customers, truly did deliver real hedging value or simply encouraged those institutions into speculative and risky exposures which they did not understand: and, if the latter, they should not sell them even if they are profitable.  They need to be willing to accept the capital and other requirements which will be imposed on activities of little value and considerable risk, rather than deploy lobbying power to argue against such constraints on the basis of a simplistic assertion that all innovation is always valuable.‘

Powerful stuff.

The regulatory reform Turner spoke of refers to a number of issues:

– a requirement for the global banking system to be more prudent and to operate with larger shock-absorbing buffers of capital and liquidity

– the imposition of much higher capital requirements against many riskier trading activities and a bias towards conservatism in the capital requirements for trading in complex and potentially risky products where the benefit to the economy is unclear.

– a far more assertive style of supervision, no longer willing to assume that market discipline and incentives will always lead bank management to make optimal decisions and one more willing to make judgements on whether business models and business strategies create undue risks for the whole financial system.

Perhaps a quiet, rather than profound, still less radical, reform.

Nevertheless, Turner also had words to say about banking bonuses, reminding his audience that new FSA rules require remuneration committees to make a key part of their consideration the risk consequences of remuneration structures and of the need to get these structures right for the long-term. In particular, banking bonuses need to be consistent with the priority of using the extraordinary profits now arising to rebuild the system and, that, long-term regulators will have a ‘legitimate interest’ in aggregate bonus payment rates ‘if and when these payments have implications for capital conservation’. So, banking bonuses are also part of the reform programme.

Turner appears not to have been carried out to Smithfield and burned but the level of apoplexy in the room at his address and the issue of reform can be imagined. But, at the very least, kudos to Turner for entering the lion’s den and reminding people that, ahead of the G20 meeting later this week, far from a return to ‘business as usual’, much of what bankers do remains contestable in terms of public policy.

Executives having a good recession

Research published today by PIRC and pension fund Railpen highlights the growth in executive remuneration despite the recession. The research is intended to help inform the debate in the US for UK-style shareholder advisory votes on executive remuneration in the US but, as The Guardian report of the publication illustrates, and despite a welcome rise in shareholder rejection of such reports during 2009, shareholder power is exercised all too infrequently in this country.  (This isn’t intended to imply that shareholder votes are not a good idea for the US.) Executive pay amongst FTSE100 companies has still risen by 80% between 2000 and 2008, despite a 30% fall in the FTSE index in that time, while the average vote against executive remuneration reports has actually fallen since hitting a peak in 2004.

This comes on top of The Guardian‘s own research into executive pay levels, published last week, demonstrating a widening gap between executive and staff pay during the recession and reporting that the pay of an average FTSE100 chief executive is worth around 100 school teachers.

Nevertheless, PIRC argues that, even though shareholders need to do more to exert their rights, the introduction of shareholder votes on executive remuneration has:

‘… clearly led to more engagement on remuneration and the shift towards a greater proportion of total rewards being performance-related is evidence of this.’

A thoughtful series of posts by Tom over at labour and capital (see, in particular, here and here) highlights that we have a substantial way to go in fathoming out the issue of remuneration as a driver of executive behaviour and on the notion of the extent to which shareholders really are able to exercise ownership powers. The response of the Institute of Directors to the Walker Report, published today, calling Walker’s proposals on executive bonuses and long-term incentives ‘too prescriptive’, calling instead for a statement of best practice, demonstrates succinctly where the power base lies. In times of a call for a high pay commission, revisited by Compass also last week, and when the G20 will be debating clawbacks on remuneration, at least of bankers’ bonuses should profits fall, the IoD’s simple arrogance in proposing no curbs but a mere code of practice looks out-of-touch and as displaying more than a touch of arrogance.

I remain sympathetic to the notion of a high pay commission as a means of examining the issue and coming up with some serious proposals: addressing in practice the laxity of corporate governance in the area of executive remuneration remains otherwise an issue in need of a strategy.

FCC to announce net neutrality rules

An article on wired.com heralds new rules on net neutrality in the US due to be announced by the Federal Communications Commission, the US regulatory authority, later today. According to the article, the FCC will start a rule-making process next month, the aim of which will be to turn the FCC’s 2005 ad hoc Broadband Principles, on which it relies for consumer protection, into a more explicit set of rules.

Net neutrality refers to the notion that consumers should be able to access whatever services they like online without interference from their internet service providers: a relatively uncontroversial issue which, however, does rub up against ISP traffic management practices intended to allow them to make optimal use of limited bandwidth (a practice that also occurs in the UK), particularly at peak times.

The existing principles are currently being tested in court by Comcast, which argues that the FCC has no power to cite it for throttling high-bandwidth video applications since the principles have no legal force, while they also pre-date the more widespread use of 3G wireless services.

The debate represents a somewhat misrepresented and rather confusing confrontation between public interest concerns (after all, how can you be against the neutrality of the internet?) and pragmatic realities based around ensuring that the net does not grind to a halt (then again, how can you be against practices which ensure this doesn’t happen?). Ranged on the one side, public interest organisations and awareness groups seeking to preserve the principles of non-discrimination under which the internet was established; on the other, telecoms companies and ISPs representing their side on the issue of the effects of over-regulation on necessary industry investment.

There is clearly a debate to be had here, although it is regrettable that US ISPs have chosen to present their views as a reflection of the impact of regulation. Net neutrality is indeed a desirable principle, but to achieve it against the background of the huge growth in online traffic will require significant investment. That investment (in fibre access networks) is coming – against the background of the recession – but slowly and at a rate that barely allows the industry to keep up with the speed demands of today, let alone ten years into the future. The beneficial contribution of regulation in areas of the economy that have been privatised is that it confirms the public policy approach, delivers certainty and thus assists private companies direct limited investment into areas that serve the public policy interest. The tension is, as always, between the need for that and the market-competing companies who are charged with its delivery and for whom the ultimate goal of investment is somewhat less to do with satisfying matters of public policy but in ensuring it delivers a return for shareholders. Privatised companies and supporters of neo-liberalism are, inevitably, less likely to be supportive of regulation which provides such direction (since anything which interferes with the directional capacity of the market mechanism is, by definition, bad), still less anything which takes away their own decision-making capacity.

In the meantime, the debate in the US has been given added spice by the bill on net neutrality which has been introduced into Congress (registration required; limited viewing time] by Democratic representatives which will seek to ensure that internet service providers cannot block or prioritise internet traffic. An open internet is a key demand of advocacy groups in supporting President Obama’s election campaign and occupies a central part of Obama’s communications policy. Republicans intend to oppose the bill on the grounds of the over-regulation of the industry and have introduced an amendment [registation required; limited viewing time] into the spending bill currently going through the Senate, the effect of which would be to prevent the FCC from using federal funds to advance its internet rules.

Edit: FCC Press Release (including reference to a new specific website on net neutrality), the text of the speech itself, comments by other members of the Commission available at the the FCC website. totaltele.com has also produced a round-up of comments from industry observers [registration required; limited viewing time].

Commission adopts aid guidelines for broadband

In its second intervention this week regarding state aid,  the European Commission has issued guidelines concerning how the public funding of broadband networks might co-exist with the EU’s rules on what constitutes state aid to industry.

The guidelines are intended to provide a clear and predictable framework and to provide a ‘comprehensive and transparent tool’ to help member states accelerate and extend broadband deployment via public investment without creating undue distortions of competition and in the knowledge that they conform to EU rules on state aid. The guidelines have been the subject of public consultation and are also based on 40 individual decisions which the Commission has made in the past five years.

The underlying principle is one of continued ‘primary’ reliance on competition and the private sector to deliver high speed and very high speed broadband networks within the context of a fully liberalised industry, but that state aid can play a crucial role in extending broadband coverage in areas where market operators have no plans to invest.

The guidelines establish ‘black areas’ (competitive areas where no state aid is necessary) and ‘white’ and ‘grey’ areas where state aid may be legally justified where conditions are met. Member states are required to take account of existing NGA infrastructure and the investment plans of established operators, with a number of safeguards (including detailed mapping, open tender, open access obligations, technological neutrality and claw-back mechanisms) set down in order to promote competition and avoid the ‘crowding out’ of private investment. Where state aid is granted to private operators, it must still seek to foster competition by requiring the operator concerned to provide open access to third party operators to the networks built with public funds.

There is little that is surprising in the guidelines, but it is disappointing that, in the current economic conditions and given the recognised role of the communications industry in assisting with short-term economic recovery and in the long-term competitiveness of Europe, a more imaginative and less dogmatic approach could not have been found. Perhaps a continued reliance on a fully liberalised market should not be so surprising – authorities spend a lot of time telling us how beneficial this has been for consumers (although I do have a reluctance to equate ‘beneficial’ with ‘cheap’ in the context of broadband, not least given the scale of investment and the required rate of returns necessary to deliver high speed broadband in a market-based environment set against the market-driven more-width-at-ever-cheaper-cost which has come to characterise the UK market). At the same time, expecting a significant level of public investment is to live in la la land when the major parties in the UK are showing signs of beginning to engage in a debate about who can make the ‘best’ cuts to public spending with more than one eye on the election.

Perhaps what is key about the guidelines, however, is that they do exist: essentially, that governments do have the authority to invest to deliver high speed networks in areas where they otherwise would not. That certainly fits with Connect’s desire to see high speed broadband delivered on a socially equitable and cohesive, nations-wide basis and, to this end, they are welcome.

Nevertheless, the definition of ‘white’ areas (no broadband network operators), ‘grey’ ones (one operator) and ‘black’ ones (two or more) is interesting. State aid is clearly possible for ‘white’ areas but why state aid can also be directed to areas where there is already one network operator is, outside of setting down another altar to the god of competition, a mystery. We can thus expect the notion of ‘grey’ areas to play a fundamental role in the decisions of incumbent operators concerning where exactly to locate their network investment.

NZ plans public-private NGA partnership

The New Zealand government – which has already instituted a programme of operational separation as regards Telecom, the former monopoly operator similar to the situation surrounding the establishment in the UK of Openreach, is to proceed with its plan for a NZ$1.5bn (£650m) public-private partnership to build a broadband network [registration required; limited viewing time].

The network would be set up via Crown Fibre Holdings, a new government company, while the government will select 33 regional and national partners, to be known as local fibre companies, that will build locally based fibre networks on an open access basis. Any organisation or consortia may invest in any of the LFCs – except that telecom service retailers may not participate, indicating that Telecom would be precluded unless it fully split Chorus, its network arm, from its retail operations.

Telecom, for which Chorus is already embarked on a NZ$1.3bn fibre to the cabinet network expected to be available to 84% of the population in two years, noted that the announcement ‘raised the issue of the relevance of [its] undertakings’ on operational separation and associated investment.

Aside of the issue of the apparent prevention of the participation of Telecom, this decision represents something of a stirring up of a nest of hornets.

Telecom has already criticised the decision as not going as far, or as fast, as its own separately-tabled plans – although the (centre-right) government has also been critical that Telecom’s own plans did not involve significant additional investment and would have covered fewer homes and businesses. Clearly, many things remain to be clarified about the plan, including the terms of access of the LFCs to Telecom’s own backbone network, without which the LFCs will not be able to deliver high-speed services whatever the speeds at which the local access networks run.

Additionally, the plan represents a fundamental turn around in the question of the ownership of and investment in communications assets, as well as the end of a single entity being responsible for end-to-end network provision. Whereas once we contracted, or formed, nationalised companies for such a network building task, high-speed broadband requires the building of a new infrastructure into which neo-conservative governments are seeking to inject neo-conservative models and assumptions about how the economy should run. In the midst of a global recession caused by the failure of such models and assumptions, this does represent an assertion of their continued relevance which is quite breathtaking.

At the same time, the creation of local fibre companies does engender somewhat cosy, nostalgic notions of local, community-owned organisations: practical reality suggests, however, the likely incorporation of these over a relatively short period of time into much bigger, much less local conglomerates with a rather low level of concern about the interests of the local communities concerned. It will be interesting to see what ownership restrictions, if any, are put on the LFCs and, if there are any, how long they last. It will also be interesting to see how long and how watertight the preclusion of telecom service retailers from the LFCs turns out to be, given that profits are unlikely to prove sufficient either from the retail of telecom services or from ownership of the LFCs alone. The natural run of things tends to suggest a likely blurring of the boundaries, and reasonably quickly, too.

It is always possible that Telecom itself could represent a potential purchaser of LFCs which, from a workers’ point of view, is likely to be a more acceptable outcome than the more likely alternative – but this depends in the first place on Telecom resolving the issue of the separation of Chorus, which decision is also likely to be a source of pain. Telecom has, however, confirmed that it has no plans for structural separation – that it was ‘just not on our radar. It’s not part of our thinking’ [registration required; limited viewing time].

Without ownership of local access networks, the future for Telecom in terms of traditional telecom services is as the provider of the national backbone network and as one of the retailers of telecom services. It’s likely, in this context, to be a lot slimmer one.

[Edited on 18 September to provide additional clarification on the position in New Zealand]

Leslie Manasseh re-elected to TUC General Council

The results of this year’s election to the TUC’s General Council have been declared and Leslie Manasseh, Deputy General Secretary of Connect, has been re-elected in Section F.

Congratulations Leslie and best wishes for the next twelve months on the Council.

Lloyds to be compelled to give up HBOS?

This morning’s Times is carrying the story that Neelie Kroes, the EU’s Competition Commissioner, is seeking ‘draconian penalties’ on Lloyds as payback for the ‘state aid’ it has received in taking over the struggling HBOS Group last autumn – largely as an alternative to the nationalisation of HBOS.

A final decision has yet to be made but Kroes is believed to have rejected Lloyds’s compromise position that it would sell Cheltenham and Gloucester and make some limited disposals in Scotland (Halifax having taken over the Bank of Scotland some years previously). Lloyds is believed to be desperate to hang on to HBOS as an entity (or, apparently, at least a large part of it) and appears to be playing a long game given the impending installation of a new European Commission.

The Times story focuses on the state aid aspects of this case, warning of other decisions recently made by the Commission and other investigations underway into the government sponsored rescues of banks which took place last autumn and the concomitant liquidity assistance and guarantees, and this is clearly part of the background (though part of the story is also quite clearly political). However, it also remains true that the merged Lloyds-HBOS group has a one-third share of the UK market and that clearly contravenes competition rules (the merger could only be approved following special dispensation). Indeed, back in July, the Commission issued advice on the state aid aspects of restructuring aid to banks, reminding of the importance of the fundamentals of competition policy and advising of the desire to see as quick a return to viability as possible for the European banking sector.

In the telecoms context, the story is a useful reminder of the prevalence of competition rules in the light of the proposed joint venture of the UK interests of T-Mobile and Orange. If prevailing competition rules are to be reinstated as soon as possible in the European banking sector, then a joint venture in an industry whose very existence was much less threatened by the recession has no chance of proceeding where it carries with it such a large market share without a similarly large programme of disposals.

The story also provides a useful opportunity to remind ourselves that those who bear the heaviest costs of such disposals and the surrounding speculation and uncertainty in the corporate merger game are, first and foremost, the workers in the industry.

French government gets involved in France Telecom suicides

Xavier Darcos, labour minister in the French government, which still owns a 27% stake in France Telecom, met the Chair and Chief Executive of France Telecom on Tuesday this week [most of the links on this page require registration and have limited viewing time] following union-led outcry over a spate of suicides in the company. The company has also been requested by finance minister Christine Lagarde to convene an extraordinary board meeting specifically to discuss the issue.

This follows two suicide attempts last week, one of which was successful, with stress arising from intensified work pressures associated with the restructuring of France Telecom definitely attributed in one of them while the other concerned someone who had been involved in discussions on restructuring services. Furthermore, a 53-year-old senior manager in a France Telecom customer service agency was found unconscious on the floor of her office on Monday this week following an overdose. Her condition is not life threatening but followed news that she was to be posted to another part of the country for the third time in a year. A total of 23 France Telecom employees are known to have committed suicide since February 2008.

The French trade unions have criticised the company for not doing enough to assist staff deal with the stress arising from the restructuring programme, while rallies have also been held. For the Confederation Generale du Travail, Christian Mathorel blamed the crisis on the strategic choices made in the obssessive search for profit, while the Confederation Francaise Democratique du Travail has previously blamed the spate of suicides on the job-cutting management style at the company. Unions are looking for an independent parliamentary commission of inquiry into the deaths.

France Telecom, which denies that suicides are on the increase in the company (although, given that higher numbers of suicides in previous years will have been at a time when its employment levels were much higher, the rate at which suicides are taking place may well be on the increase) has said that the restructuring programme cannot be halted but has, nevertheless, suspended it until the end of October in order to re-evaluate the conditions under which it is taking place. It will also increase medical and social assistance for employees, stepping up its training of managers to help them detect potential suicide cases and introducing a telephone distress line and other psychological counselling measures, and will employ more human resource officers at the local level. It has also noticeably moderated its language following the meeting with the French labour minister, pledging to end the ‘shocking… infernal spiral’ of deaths.

The restructuring of France Telecom, which employs around 100,000 people, is associated with the increasing commercialisation of the company and has been accompanied by 22,000 job losses in the last three years. There have been no compulsory redundancies – all job losses have been achieved through natural attrition – but this has clearly taken a heavy toll on those left behind. This will have a heavy resonance for Connect members and our own 2009 survey on working for BT, the analysis of which is now underway, will be closely examining stress levels and setting them into the context of our previous results on the issue.

[Edited on 16 September to correct some details and add others]

DC not making up for DB

It’s often assumed that the declining private sector provision of defined benefit schemes is compensated for – at least, in terms of coverage – by defined contribution schemes. Research published today show that even this limited scenario is not the case, with the falling percentage of the private sector workforce covered by DB schemes meeting with a percentage of the population covered by DC schemes which is, at best stagnant. More than three in five private sector workers have no pension at all.

At the same time, the percentage of the private sector in DC schemes which have an employer contribution rate in excess of 8% – i.e. which operate at the sorts of levels which might deliver a comparable pension to DB schemes – is a little over 7%. So, only around one in three members of DC schemes are earning a pension which might be assessed as adequate.

The TUC Press Release announcing the figures carried some useful statistics, which I have graphically presented here:

The action that Congress will be calling for this week on quality pensions is timely; indeed, it is overdue. As the motion says, defending quality pensions isn’t about attacking the pensions of public sector workers; it is instead about trying to do something that will ensure that workers in the private sector gain access to pensions better than they currently receive – ones which will do little more for them in retirement than leave them relying on the state.

Congress ’09 begins

A warm welcome to Congress 09, which meets in Liverpool this week. You can follow Congress this year by means of a specific website, featuring photos, comment, a widepread use of social media and online discussions with the specific purpose, in this year of recession, of spreading Congress away from the Convention Centre to allow those not directly involved a better picture of it.

You can track Congress directly here.

Incidentally, the US confederation the AFL-CIO is also meeting this week, in Pittsburgh, and you similarly track its progress here.

T-Mobile and Orange comment

Just briefly, given that it’s a Friday night and I really ought to be somewhere else right now, totaltele.com’s Friday Review (registration required; available for a limited time only) this week gave an interesting summary of some analysts’ comments on the prospective UK joint venture between T-Mobile and Orange.

Two things leaped out of the summary for me:

– Orange and T-Mobile, while having a hugely significant market share of the 2G (USM) market – in fact, they have half of it – have a much lower share of the 3G (what we might call mobile broadband) market (some 27%)

– analysts have been talking of a tie-up between Vodafone and BT.

The former is the most interesting of these since it casts a fresh perspective on the competition aspects of the venture of which I have been highly critical previously (see my earlier post this week). 3G is, of course, the future of mobile communications (until 4G comes along, anyway); we cannot so easily dismiss the past, where T-Mobile and Orange are particularly strong – but, as subscribers increasingly switch to 3G, this does change the balance of the market share since where T-Mobile and Orange are currently very strong is, in this context, a declining market (unless and until T-Mobile and Orange do manage to get it together on 3G – which the joint venture may well facilitate). I do hear the sounds of company spin here, but it is an intriguing argument nonetheless.

The second item I think we can surely discount, for all manner of reasons not least including the deficit in the BT Pension Scheme. But it does go to show the need to beware of analysts who (at last!) have some news to speculate about – speculation extending to other companies on the fringe can sometimes be rather wild.

Another aspect of the news this week is that Ericsson has, by the way (via a series of outsourcing deals), built a position for itself where it manages a large proportion of the total mobile network on behalf of the individual players. Some comment has been raised that, if this sort of monopoly operation was allowed then so should a joint venture operator with a market share of 37% (or 43%, including wholesale operations). But I think this is a different situation entirely: the arrangements with Ericsson are contractually based (and can thus be ended) and, while it does give Ericsson a fair amount of power over the operators themselves, the impact of such a position on the key question of competition between operators as regards consumers is harder to spot – though, it must be said, it’s not impossible to conceive of a situation in which Ericsson was able to use its dominant position to ratchet up the costs of network management, with an evident impact on prices to end users. Other network management companies, however, are available should the price rise too high…

BT’s Undertakings re-prioritised

Ofcom has today issued a statement concerning the re-prioritisation of BT’s Undertakings, part of which concerns the separation of infomation systems and databases between Openreach and the rest of BT. Ofcom consulted on this issue back in May (blogged about here) and Connect and the CWU jointly drafted a response in July broadly welcoming Ofcom’s move.

The issue essentially considered the relaxation of several of the Undertakings as regards systems separation in return for a set of new commitments to particular service developments. We supported the move on the grounds that allowing systems and information development employees to approach the purpose behind their role from a perspective of writing new software for the new principles under which BT operates, rather than trying to make legacy systems, written in a different era and for different purposes, do things for which they were not designed, was clearly a rational way to deal with the requirement in the Undertakings for separation.

In discussions with BT and other communications providers subsequent to the closure of the consultation, Ofcom has satisfied itself that the delay in meeting separation targets would have a limited impact on competition (and would also be ameliorated by the concomitant service improvements by Openreach), while the overall position had also been strengthened subsequent to the consultation both directly in the Undertakings themselves and otherwise in the production of a separate side letter from BT. Consequently, it has approved the changes. In particular, Ofcom believes that:

The Undertakings will continue to be a comprehensive solution to the competition problems identified as a result of the TSR [Telecoms Strategic Review].

This would seem to be a good outcome both for BT as well as for the rationality of regulation itself, where evident problems appear, to have a focus on a common sense approach within the overall aims while not over-focusing on detailed prescription.