IASB puts up new Exposure Draft on pensions accounting

The International Accounting Standards Board has put up a new Exposure Draft proposing amendments to the accounting regime for defined benefit pension schemes.

The Exposure Draft is, essentially, the accounting profession’s way of publicly consulting on changes to the accounting standards which govern financial reporting regimes. Like everything else, accountancy is governed by global standards which seek to harmonise how accountants report company accounts; unfortunately, IAS19, which governs how defined benefit pension schemes are accounted for, is subject to the same short-termist approach as the rest of the corporate world, implying that it is inimical to the long-term nature of defined benefit pension schemes. Both it and its predecessor in the UK (FRS17) have been blamed, at least partly fairly, for contributing to the rush to close DB schemes.

The IASB has already been through a lengthy consultation process on its preliminary views on refining how defined benefit schemes are financially accounted for; this new consultation runs until early September this year. The Draft is available for public comment and the IASB aims to finalise its plans by mid-2011, with a view to the new standard becoming effective in 2012 or 2013.

The new Exposure Draft seeks to ‘improve’ (in the context, a word full of dread!) pension scheme accounting by requiring companies:

– to account immediately for all estimated changes in the cost of providing pension benefits and all changes in the value of plan assets

– to use a new presentation approach that would clearly distinguish between different components of the cost of these benefits

– to disclose clearer information about the risks arising from defined benefit plans.

Some of this inevitably needs decoding. According to KPMG, what this means in practice is that companies will henceforth have to stop booking a ‘profit’ in their accounts equivalent to the gap between expected investment returns and the interest cost paid on pensions liabilities. This ‘pensions credit’ is, essentially, a way of recording a paper profit from the pension scheme where schemes’ investment returns are higher – as they usually are, where schemes are investing in equities – than the AA corporate bond yield used to discount liabilities. The introduction of the amendments to IAS19, which will require the assessment of investment returns to be based on the same yield on AA corporate bonds, thus effectively ending the credit, will, clearly, lead to greater transparency in accounts – and, at the same time, to a further reduction in the attractiveness of running DB pension schemes.

KPMG’s press release quotes that this will ‘cost’ UK businesses £10bn in lost earnings, with the largest schemes facing a ‘loss’ of £50m per annum, while the ubiquitous John Ralfe believes that this will ‘cost’ BT £750m (turning a £500m ‘profit’ from the scheme on the existing basis into a £250m ‘loss’ under the new one). Ralfe has a long-standing antipathy to schemes investing in equities – as this blog has previously observed. In terms of the actual cost in individual cases, much would seem to depend on how much schemes have invested in equities – though (perhaps to disappoint Ralfe) this is unlikely to result in schemes adopting more cautious investment profiles in the interim.

Will it make much difference? Yes, clearly, to those schemes which remain open to future accrual (the BTPS among them): changes in accounting rules which take money away from the profit and loss account – however much such money was paper only, and regardless of whether pension schemes should have been used in this way to boost earnings – will have an impact on ordinary workers since that ‘profit’ will have to be found from elsewhere so as to retain the level of earnings. Whether it will lead to more schemes being closed, given the numbers of schemes which have already come crashing down and the weight of other arguments against running DB provision which already exist, is a moot point.

Certainly, however, it – together with the requirement for further ‘clarity’ on the risks associated with defined benefit provision – can’t help; I’m almost of the view that it’s the latter that is the most damaging feature of all this: regardless of the ‘losses’ which need to be made up, having to write (or read) even more stuff in company accounts about just how much risk is posed by running a defined benefit scheme may well end up wearing down even the most resilient of corporate defenders of DB provision.

Clearly, these remain tough, and worrying, times for DB schemes, and most of all for the members of them.

Credit ratings agencies: the lessons of a children’s fable

Some interesting pieces in the media today on credit ratings agencies, which appear, at least on the face of it, to have been produced pretty much without recognition of each other’s existence: on Peston’s Picks; at Citywire; and by John Gapper at the FT.

The consensus between the pieces appears to be largely that the agencies remain influential, not least in the context of their role in the current financial crises enveloping Greece and Spain, in spite of an inability on past form to recognise – in the gutter language of the day – a turd when they see one and to call as such. Shockingly, it also seems that the agencies were either uninformed (or else misinformed) of the full depth of the products they were rating, or else they simply did not understand them and did not care sufficiently to find out. Either way, I’d have thought that an ability to stand up and say, along with the child in Hans Christian Andersen’s fable, that ‘the Emperor has no clothes on‘ would have been a prime raison d’être for such an organisation – or better said, perhaps, that such an ability ought to be their most highly valued asset in the future. Economies deserve better.

The agencies’ collective ability to resemble the three  ‘hear no evil, see no evil and speak no evil’ – except at the bidding of their masters in the financial investment and speculatory world, of course – renders them ripe for reform by any government intent on tackling the financial abuses which have led to the current scandals and returning national economies to be run in the interests of the people.

Britain’s digital future

The Guardian‘s Tech Weekly podcast this week focuses on the parties’ views and attitudes towards Britain’s digital future, featuring discussion and comment from the three leading parties’ main representatives (Stephen Timms, Jeremy Hunt and Lord Razzall) on the following issues:

– curbing piracy and file sharing

– intellectual property copyright reforms

– how to fund rural broadband penetration

– dealing with the library of government data.

I haven’t yet listened to this in full but will be doing so with some interest, blogging any issues that arise. In the meantime, you can pick up the podcast, or listen online, here.

A greener wireless industry

Telecoms companies have united in another green initiative, this time with the aim of achieving a 50% reduction in the energy consumption of so-called 4th generation (or LTE) mobile wireless communication networks, and with the aim of commercialising its work by the end of 2012. The Earth (Energy Aware Radio and neTwork tecHnologies) project is based on research into ways of saving energy in mobile networks, network components and radio interfaces with the aim of laying the foundations for a new generation of energy-efficient communications equipment.

Other than that, the company press release is really rather dense (which may well account for the distinct lack of interest amongst the UK press, even on what seems to be a slow news day). Indeed, the initiative seems to have got underway some three months ago and only now has a press release been put together about it. Alcatel-Lucent and Ericsson are the lead names on the initiative (as indeed the former was on a previously announced green initiative, which I blogged about here) but it also encompasses 13 other partners, including research institutes and universities, and the European standards organisation, ETSI, alongside the telecoms partners.

LTE (Long-Term Evolution) is the name for the next generation of mobile, with a wide range of frequencies deployed to allow users to watch high-definition video and receive much faster downloads on their mobile devices. An auction encompassing LTE-appropriate spectrum has just been concluded in the Netherlands, while similar is currently underway in Germany. Plans in the UK, intended to have been facilitated by Kip Meek’s independent brokerage and accepted by the government, have been derailed both by operator objections and by the loss of key chunks of the Digital Economy Bill, but may return to the agenda after the general election.

So, the new initiative is timely and very welcome – even if the EARTH programme, if not its aims, suffers from an inevitable imprecision as well as the equally inevitable strong dose of corporate puff. Similar to the last initiative, however, my gripe remains the relative lack of UK involvement. The University of Surrey is one of the consortium partners, but UK involvement seems otherwise to be minimal. Leadership on these sorts of initiatives is up for grabs and it would be a shame were the technical expertise in energy efficiency generated by such initiatives to flow largely elsewhere.

The ‘Google tax’ and net neutrality

It is being reported that Vodafone is to ask the European Union to take action so as to ‘facilitate bilateral agreements between telecom operators and online content providers like Google’ – essentially, to allow network operators to charge content providers, such as Google, YouTube and, probably, the BBC’s iPlayer, additional fees in relation to the network demands placed by the users of such services.

Operators would rather charge content providers than consumers, but it would seem that some network operators have started to realise that the ‘all you can eat’ model – under which bandwidth comes at a flat rate (except, perhaps, for usage caps on really high users) – is not a viable economic model in a scenario of the rapid growth in bandwidth consumption we are experiencing. More and more for less and less is never a particular sound economic model. Clearly, in such a situation of heavy retail competition, essentially preventing operators from starting to raise prices, or to alter pricing structures in accordance with consumers’ capacity usage, operators need to look for alternative sources of revenue – and content providers represent it. (How we’ve got into this mess in the first place is a different blog post altogether.)

Were they to succeed, then this is likely to lead to a further commercialisation of the internet, in terms of how the content that you read, or view, is paid for (though, to be fair, such a commercialisation is proceeding apace anyway via new advertising models), with network operators essentially wanting their own slice of this action.

On the face of it, the reference to the need for EU action looks a little odd – there is nothing to stop operators coming to such bilateral agreements amongst themselves and, in a free market, that’s probably the more preferable response (where, of course, content providers are prepared to play ball, which they may well not be).

The other difficulty, of course, is the reference to the principle of net neutrality, according to which network operators should carry net traffic on an open, non-discriminatory basis. (Roger Darlington reviews the issues of net neutrality very well in his monthly column for Connected, the magazine of the Connect Sector of Prospect, which you can also read online here.) Starting to charge content providers for network quality, or levels of consumption (as measured by capacity usage), starts to affect how the net operates since content providers, under the commercial pressures of such agreements, are likely to want to see ‘their’ traffic prioritised by those with whom they have reached such agreements. Indeed, such prioritisation is likely to be included within any such agreements on charging. The upshot will be changes to how the net operates, and is experienced, some of which may well be invisible to the naked eye – a problem for those supporting a liberal internet and likely to lead to such principles being heavily compromised.

The original source for this post reports that Vodafone is making its push via a shortly-to-be-finalised submission to an EU consultation on net neutrality. This is a bit strange, since the last I saw from the EU on this issue was this (part of last year’s EU telecoms package) which, in Annexe 2, does talk of the importance of preserving ‘the open and neutral character of the net’ and seeking to enshrine net neutrality as a policy objective for member states. I can’t find a reference to an open consultation on this on the appropriate pages of the EU portal, although we know from Ofcom’s annual plan for 2010/2011 that some activity will be taking place (A1.77) – while Roger’s piece also refers to a UK discussion and consultation on net neutrality taking place ‘later this year’ (and, evidently, within the context of EU action).

Such confusion aside, it is clear that operators (the original source cites also Telefonica) are starting to gird their loins for an attack on net neutrality so as to allow them to seek to charge content providers for access (in this context, Project Canvas takes on a new light since it would seem to allow project partners to side-step any such charges). Equally, the EU looks set against such a model, so it could be quite a battle. Consumers will end up paying the price somewhere, although whether that’s a cash-based or a principles-based price (or both) is an interesting question.

Orange refused Swiss merger

Swiss competition regulators have refused permission for Orange, the smallest of three operators in Switzerland, to merge with Sunrise, the Danish-owned second largest operator, on the grounds that the proposal would undermine market dynamics and damage consumer interests.

The merged entity, for which proposals had been developed last November, would have had a market share of 38%, compared to the 62% held by Swisscom, the former monopoly operator. However, the view of the Swiss authorities was that the merged operator: ‘would have been in a collective dominant position which risked eliminating effective competition.’ Uppermost in the authorities’ mind was that it would be more advantageous in a two-company market for both to collude over pricing levels.

An appeal, which must be lodged within 30 days, is thought likely [registration required; limited viewing time]. In the meantime, a knock-on effect of the decision has been to delay a planned flotation of TDC [registration required; limited viewing time], the Danish parent of Sunrise, which is currently owned by a consortium of five well-known private equity groups (Blackstone Group; Permira; Kohlberg, Kravis, Roberts & Co; Providence; and Apax Partners). Part of the Swiss merger would have meant France Telecom, Orange’s parent, handing over €1.5bn in cash to TDC in return for a 75% share in the merged operation – without which, on the face of it, the private equity groups concerned have been unable to realise sufficient gains prior to their exit from the Danish market.

Clearly, the Swiss mobile communications market is different to the UK one and Switzerland is outside the EU, so it’s not particularly interesting to examine the reasons for the approval of a merger in one market compared to a decision to reject a merger creating a still-small entity in another. At the same time, however, and taking these two recent situations together, it is interesting that the rationale for merger approval or rejection in neo-liberal societies seems, on the face of it, not to be so much the desire to create, or achieve, conditions of high competition but to minimise the point at which there is a potential for pricing collusion.

It’s also an interesting reflection on the role of private equity groups, and their ability to extract high rewards from relatively quiet situations (the Swiss mobile market is 9m consumers) – as well as a comment on  the involvement of private equity groups in telecoms companies. If the €1.5bn was as crucial as that to their exit from the Danish market, and sufficient to postpone it when its arrival has been blocked, then it is likely that the efficiency gains sparking their involvement in TDC have not been sufficient to make their involvement in Denmark worthwhile. At least – not yet; which may in turn spark a note of further warning to Danish trade union colleagues.

It would have been even more interesting had Deutsche Telekom, in which Blackstone has a stake, had been involved in the Swiss market.

Young Fast Optoelectronics

One of LabourStart’s current campaigns concerns workers at Young Fast Optoelectronics, a Taiwanese manufacturer of touch panel screens whose customers include Samsung, LG, HTC (which supplies phones to Vodafone in the UK) and Google. Following a concerted union organising drive at the factory in the face of poor working conditions, which led to the establishment of the union in December 2009, management at the plant has sacked five union officers and more than ten active union members.

LabourStart is organising an e-mail campaign in support of the union and the sacked workers, and calling for the improvement of working conditions at the plant, which you can join either from the LabourStart homepage, or else directly here.

It’s a telecoms industry plant, and these workers need to know that they’re not alone. Please do what you can to support them.

COSMOS officially launched in UK

COSMOS, a major five-country European study into the long-term effects of mobile phone usage, was launched in the UK yesterday. Over the course of the next two weeks, some 2.4m people in the UK will be invited to take part in the initial stages of the study, via an online questionnaire. The other participant countries are Denmark, Sweden, Finland and the Netherlands.

The commencement of the research in the UK is the responsibility of the UK’s Mobile Telecommunications and Health Research Programme, itself set up following the publication of the Stewart Report into mobile phone use in May 2000. The Stewart Report concluded that, while exposure to radiofrequency emissions from handsets and mobile base stations at levels below the existing guidelines do not cause adverse health effects to the general population, there was a need for a ‘substantial research programme’ into the isses.

The most recent MTHR report, published in 2007 (full report; press release), found no association between short-term mobile phone use and brain cancer, or evidence that brain function was affected either by mobile phone signals or by TETRA (high speed, high frequency communications networks used by the emergency services), and reported that there was no need for further research in this area. However, the report did acknowledge that there were ‘significant uncertainties’ as regards more long-term exposure, since available studies were based on very few people who had used their phones for ten years or more, and that these could ‘only be resolved by monitoring the health of a large cohort of phone users over a long period of time’. At the same time, cancers rarely show up as quickly as within ten years.

Consequently, the COSMOS research is a part of progressing this aim via a 20-30 year study of the mobile phone usage and health of 200,000 adults across Europe, 90,000 of which will be selected from network operator subscriber lists in the UK, for which funding has so far been made available for the first five years (£3.1m).  The study will focus on the risk of cancers, benign tumors and neurological and cerebro-vascular diseases, as well as changes in the occurrence of specific symptoms over time, such as headache and sleep disorders.

The number of mobile phones has increased dramatically in the decade since the Stewart report: then, there were 25m phones in operation (a market penetration rate of about 40%) while currently, according to Ofcom, there are 76.8m mobile phone subscriptions (a total of 1.26 connections per UK inhabitant) (Figure 4.42). Despite the increasing use of smartphones and mobile handsets in general as devices for a range of uses other than talking to people, mobile volume call minutes continue to grow sharply, as the following figure shows:

Source: Ofcom Communications Market Report 2009, Figure 4.71

At current levels of usage, we spend one day per year (24 hours), for each connection that exists, calling someone on a mobile phone. Given the penetration rate in the UK, each one of us actually spends more than 30 hours a year talking on the mobile. These levels of usage are unlikely to drop – smartphones add functionality without replacing the existing, and evidently expanding, need to call people on the hoof.

The study will thus make an essential contribution to filling important gaps in our knowledge about the effects of mobile phone usage in the long-term. As the COSMOS researchers say, there is no evidence that mobiles present any dangers to health – but we don’t know that they don’t. An initial report is expected in 2020 – perhaps an auspicious date for generating a vision as to what the overall conclusions at the end of the project might conceivably look like.

Love it

The BBC is reporting that Unilever, the makers of Marmite, is initiating legal action against the BNP to force the racist party to remove a jar of Marmite which apparently features in its election broadcast (further, and funnier, from Reuters and from Harry’s Place).

It would be nice to think that Unilever subscribes, even in a small way, to the ‘not in my name’ philosophy of HOPE not hate; I can’t say that it doesn’t – and anything which ties up the BNP in the threat of legal action, or distracts or otherwise helps to sap it, has to be good news.

Eyjafjallajokull: it’s been no joke

The lack of blogging activity on this site last week was due to me being in Plzen, in the Czech Republic, at the 11th annual conference of the Otto-Brenner-Stiftung (the research arm of the IG Metall trade union) and the annual Editorial Board meeting of the South-East Europe Review, the journal of labour and social affairs in the region of which I am Associate Editor.

I was due to return on Friday… and finally managed to return home some fully four days later last evening, after a return trip involving detours to Nürnburg, Berlin, Amsterdam and Brussels, from where an additional Eurostar finally got me back over the physical barrier of the Channel. I won’t go into the full gory details of my own experience, but I thought I might make a couple of observations based on it:

1. It really doesn’t help travellers plan what to do in these situations when airports are advising that they are closed until 6 am tomorrow, then until 3pm this afternoon, then until 6.30 this evening… Such continual postponements give the illusion that the closures are likely to be short-term ones, when something on the lines of ‘travellers are advised to make alternative arrangements for their trip’ do at least add some certainty to the picture. Last Friday lunchtime and late afternoon, that would have been particularly welcome and I don’t think this is just with the benefit of hindsight.

2. Airlines whose retail ticketing arrangements are confined to call centres and online ticketing are in no place to offer assistance to stranded travellers. On leaving Plzen, my initial decision was to return to Prague to throw myself on the mercy of KLM (this blog has a policy of naming names, after all), which had conveyed me (and quite acceptably) from Glasgow to Prague in the first place. Except, KLM has an operation in Prague only at the airport, which was closed; in Prague itself, the address obtained that morning from the KLM website is a mailing address only. So, there was no airline mercy on which to throw myself. There was no presence in Berlin either, only at Tegel airport, and even at Schiphol, my initial survey of the departures area conveyed nothing of relevance to the airline itself. The lines to the call centres – as you might expect – were continually engaged. Simply, that’s not good enough. My ticket might have been (reasonably) cheap, not being ‘fully flexible’ and all that, but that doesn’t entitle the airline to abandon me. Essentially, this is exactly what their lack of presence in city centres does.

3. So, I’m not currently at all well-disposed towards flight companies and if I hear any more bleating about how much they’ve lost in all this, I will be forced, well, to write an official letter of complaint. I’ve waved farewell (or, at least, my credit card has, so far) to over €900 since last Friday – and that’s in additional accommodation and travel alone. No doubt the hoteliers, travel companies, restaurateurs and, to be fair, brewers of central Europe won’t be complaining too much, and I had a nice little break in central Europe – but that’s a transfer of resources I can ill-afford and the scale of the expenditure is worth far more to me, in relative terms, than whatever it is to the airlines. When did our society – and, I would venture, this is a pretty distasteful Anglo trait that wouldn’t be acceptable in much of central Europe – become so much more dominated by commercial interests than those of ordinary people?

4. Information has been very late in arriving. This is helpful (though today is the first day I’ve seen it) and today I’ve had two texts, one from a financial institution and one from my phone company, offering help with credit limits and with travel information. Only, I’m not now stuck in Europe (my phone company ought to know this!). OK, it’s not too late for others still stuck and not as lucky as me to get on an additional Eurostar. But where was it over the weekend, or early this week? Accessing travel information on the move was difficult this week, for a variety of reasons, but the information society seems to have failed, here. Perhaps I need to invest in a smartphone.

5. My train company in the UK seemed to have more first class carriages than usual relative to the numbers of second class ones, while the costs of my accommodation in Amsterdam looked to have been somewhat inflated. I may be simply wrong in the first place (and I had no problems getting a seat in second class); perhaps it’s our fault for not being better Europeans in the second, and no doubt the companies involved would claim the prevailing ‘laws’ of market forces. But, this looked like a bit of simple profiteering to me.

Enough of the brickbats. Bouquets, however, do need to be directed to the following people:

– the moral support of participants in the conference and particularly Bruno Sergi, Kemal Oke and Darko Marinkovic, whose initial comradeship kept me in good spirits after the evident policy FAIL of my decision to return to Prague

– Frau Furthe at Nürnberg station travel centre, who spent a good 20 minutes at her terminal in trying to get me home via a sleeper from Berlin and then by Eurostar (already by Saturday afternoon nothing until Tuesday, and then only first class and too late for onwards travel in the UK to Glasgow the same day) and whose best efforts were met only with rejection (I think she understood)

– the friendly staff at the information centre in the castle at Nürnberg (regards to Glasgow duly given over a glass of malt whisky at Queen Street station last night!)

– the good people at the art & business hotel in Nürnberg for coping with my attempts at speaking German and for providing me with a cracking breakfast on Sunday morning

– the staff of Zur Gerichtslaube in Berlin just for being very good at what they do (and the couple with whom I shared a table)

– Ellen Huiskamp, from the offices of Treinreiswinkel, in Amsterdam, whose cheerful assistance and reporting of a just released additional Eurostar revived my considerably sagging spirits on Monday afternoon, it seemed to her complete bemusement. And all conducted in faultless English, too (my Dutch not being up to much).

People’s essential humanity never ceases to amaze, as much as the ignorance of faceless corporations never ceases to surprise.

Blogging activity should now resume as normal …

Pension Trends: ONS speaks on contributions

The Office for National Statistics produced the most recent instalment of its ongoing Pension Trends publication, which it appears to update on a rolling basis, last Friday. This most recent update is for Chapter 8, on pensions contributions.

The headline stuff from the report, and the policy implications that flow from it, has been pretty well rehearsed – and is also there in one-page summary at the start of the document. Total contributions into pension schemes went down in 2008, for the first time since the series began in 1995; while the level of total saving in DC schemes, at around 9.1% of salary, not only compares poorly relative to the level of contributions going into DB schemes (21.5%); but also in absolute terms, in the context of the levels of contributions generally thought necessary to produce a decent income replacement rate in retirement. Employers pay around 70% of the contributions, which closely aligns with the policy of the Connect Sector of Prospect for a split of two-thirds: one-third between employer and employee contributions.

These things we know (not least because the ONS has already reported them in its annual survey (press release; report). What I did find particularly interesting about the updated chapter 8, however, was Table 8.14, which reports the changing levels of employer and employee contributions since 2001 by type of scheme; specifically, funded and unfunded ones.

This reports that employer contributions into funded schemes has more than doubled since 2001, to 32.7% (although now apparently off its peak), while the employee contribution has also risen, to 7.1%. In unfunded schemes, the employer contribution has also risen, to 14.8%, but it is the employee contribution that has more than doubled, to 7.5%. Thus, the ordinary members of unfunded schemes are actually paying a higher level of contribution into their pension schemes than are members of funded schemes, in absolute terms, as well as a higher proportion of the employment-based costs of such schemes.

Well worth bearing in mind when considering the position of unfunded schemes and the debates over pensions provision in the UK.

Meanwhile, Philip Inman has an ill-considered and over-the-top piece in The Guardian today which purports to name ‘the California teacher, the BT engineer and the German car worker‘ as ‘the real villains of the piece’ in the global economic crisis, as a result of their membership of occupational pension schemes (the California teachers pension is the second largest in the US; the BT Pension Scheme is the largest private scheme in the UK; and the German car worker – well, it fits the thrust of Inman’s story). According to Inman, it is chasing the level of returns required to finance an ‘otherwise unaffordable’ retirement, forcing investors to ‘stop at almost nothing to win big’, which is to blame for creating the global asset bubbles which led to the crisis. Hold the history books! I thought it was greed that got us in this mess, when after all it was ordinary folks just trying to do an honest job to give us the retirement pensions that we so unreasonably demand…

Bearing in mind that very recent ONS data records that pension funds only account for around one-eighth of the UK stock market, and consistently so since 2006, it’s a little difficult to believe that yours and my pensions are really at fault for investment managers’ speculative activity: still less to pin it down to the ‘greed’ of workers for an ‘affluent retirement’ via their membership of occupational pension schemes. More prosaically, schemes will invest in a variety of investment vehicles commensurate with the age profile of their members. Some of that will be in high risk assets; some in low risk ones. According to its most recent Annual Report, the BTPS invests some 41% of its assets in low risk vehicles such as fixed interest accounts and inflation-linked savings; a further 11% in property, 35% in shares and 12% in alternative investments. That doesn’t look so irresponsible to me, still less the sort of investment profile which gives a green light to investment managers to ‘rape and pillage’ on their account.

A rather shameful piece in this respect, Mr. Inman.

During April and May, the Connect Sector of Prospect is asking branches to help members understand the importance of pension provision and the advice they can get from the union in this area: if anything in this post confuses, concerns or alarms you, why not have a word with your branch principal officers and try and arrange something which seeks to respond to your concerns?

Solidarity – Anna Walentynowicz

One of those to die in the crash of the Polish airplane taking senior Polish officials to commemorate the victims of the Katyn massacre at the weekend was Anna Walentynowicz, veteran of the struggles to establish what became Solidarność – and independent trade unionism – in Poland.

John has a well-put tribute here, and John’s Labour blog features a link to a blog post giving some more of the history of the ‘woman of iron’.

Cameron on public sector pay

As part of an attempt to portray his party as a ‘radical’ party, ‘Call me Dave’ Cameron is looking at linking the pay of public sector executives to the pay levels of the lowest paid in the organisation: pay at the top should be no more than twenty times pay at the bottom, as part of an initiative on ‘fair pay’.

Two points, really:

1. there is no private sector ‘authority’ for doing this, as Cameron’s article appears to claim: there may well be ‘some’ private companies that operate similar practices but let’s not kid ourselves that the private sector is setting a lead here: it isn’t. We can all cite one or two, but I’d challenge Cameron to use two hands to count the numbers of private sector companies that actually use such multiples.

2. pay levels are actually more compressed in the public sector: the lowest paid tend to be paid higher than their counterparts in the private sector; the private sector pays better for those with higher education and degrees. So, the differential between high pay and low pay is much less in the public sector than it is in the private sector, where the need to tackle unfair pay is, therefore, much greater.

Is that a vote for a high pay commission then, Dave?

Don’t worry: we’ve still got the 2 Mbps USC!

After yesterday’s stripping out from the pre-election legislative timetable of several of the things that the Connect Sector of Prospect has campaigned for as outcomes from the Digital Britain initiative, picking over the guts of what’s left leaves us with little more than the 2 Mbps universal service obligation oops, commitment.

Having read this this morning, I briefly wondered whether even this had survived – although indeed it has; it actually never formed a part of the Digital Economy Bill since no aspect of delivering the commitment needed fresh legislation.

Delivering the commitment to a 2 Mbps service by 2012 reflects the intention that broadband should be delivered on a universal service basis to all those areas in the country which are currently poorly served by broadband – i.e. by ‘no later than’ 2012, all homes in the UK, more or less, should have access to a broadband service of 2 Mbps. Digital Britain reported that currently some 11% of homes (pp. 53-58) – 2.75m in total – are not able to get access at this level of speed. Pursuing this commitment is to be the responsibility of Broadband Delivery UK, a body announced by Stephen Timms in early March and which is to be headed, so Timms announced in Parliament later that day (although it never featured in the BIS press release) by Adrian Kammellard, previously Head of Major Projects at Partnership UK. Broadband Delivery UK remains a somewhat mysterious body; as thinkbroadband comments, it is currently without a web presence – this is as close as I can find – and little information is available about it apart from it being constituted of a body of 12 staff from within BIS.

In the uncertainties of the pre-election period, it would be surprising if Broadband Delivery UK was to have much of a profile: its original workload was yesterday cut in half, although this cut may be restored if the outcome of the general election was to return a Labour government. Nevertheless, the other half – the 2 Mbps commitment – does remain and, given that it has all-party support, the establishment of Broadband Delivery UK prior to the election consequently ought not to interrupt its progress after it, whatever the outcome.

In that context, here’s my ‘Dear Adrian’ letter of the issues that remain to be resolved within the commitment. Some of these are long-term ones, perhaps a little outside of the central remit, but an early recognition that they are ones which need to be addressed would be welcome:

1. 2 Mbps was picked, in the words of the interim Digital Britain report, since it represented what, by 2012, ‘will be in step with standard broadband usage’ (p. 57). This was even then a little unambitious; some 15 months later it looks increasingly outmoded when average speeds are already twice that and when much higher speeds are being rolled out elsewhere. The commitment to a 2 Mbps can’t be changed, at this point, but what is on the tin should be what is in the tin – people benefiting from the USC should get access speeds which are not ‘up to’ but ‘at least’ 2 Mbps. The approach of the US National Broadband Plan, based on actual speed, has a lot to commend in this area.

2. 2 Mbps is a welcome start in terms of ensuring that all broadband coverage is applied on a universal service basis. But it is only a start and, in the grander scheme of things, it isn’t very fast and will, in time, simply provide a very linear demarcation of the digital divide. Some thought therefore needs to be given to how this speed will change over time and, specifically, how it will be uprated: if it is not, people behind it are likely to lose out as speeds are driven faster and faster elsewhere. So, there needs to be a formal review mechanism to ensure continuing relevancy (or perhaps, better said, to guard against increasing anachronism).

3. A 2 Mbps speed refers only to download speeds, not upload ones. In a Web 2.0 world dominated by active sharing, rather than passive receiving, and by cloud computing, upload speeds will adopt increasing importance. Thought therefore needs to be given as to how these can be reflected within the commitment, and also encompassed within the regular reviews of the speeds embraced by it.

So, there remain some things within the current policy programme which can still be pushed, to go on top of the things which need to be reinstated on 7 May. And, above all, Charles de Gaulle was right.

New powers for Ofcom also dropped

The government is also proposing to drop Clause 1 of the Digital Economy Bill (see also The Guardian). This would have given Ofcom new powers to have ‘particular regard’ in carrying out its statutory duties on behalf of consumers to the need ‘to promote investment in electronic communications networks’. The dead hand of the Tories on the tiller is all too visible here, too.

The Connect Sector had supported this Clause right from the publication of the final report of the Digital Britain initiative since it would have commanded Ofcom to focus in its promotion of the interests of consumers on the need for investment, alongside the existing duty to promote competition. It would have overturned a singular reliance on promoting competition, which had been how both Ofcom and Oftel before it had interpreted the interests of consumers. It is the promotion of competition, to the exclusion of all other concerns, that has allowed us to reach the stage of falling real prices for telecoms services to the point where it is likely to endanger investment. In an intensely competitive situation, falling prices can only inhibit levels of investment since it both undermines and makes more uncertain the rates of return that can be made. When investment is expensive – not least given the need to boost investment in fibre towards fibre to the premises solutions, rather than just fibre to the cabinet – such levels of uncertainty will simply lead to it not being made. And that’s not in the interests of consumers either.

Yet we’re now back in the situation of Ofcom interpreting its regulatory remit on looking at the interests of consumers solely through the telescope of competition. A one-club, narrowly focused and ultimately irrational approach to regulatory policy.

The new duties for Ofcom, by recognising the central role of investment in developing the UK’s communications infrastructure and in insisting that Ofcom supported that in its approach to regulatory decision-making, would have helped to support the case for that investment. Their likely withdrawal – voting on the Digital Economy Bill is tonight – only undermines that case and, in the process, undermines a significant portion of the Digital Britain initiative.

Landline duty dropped

The BBC is reporting that the proposed landline duty – the 50p/month levy on fixed lines to contribute towards building out high-speed broadband services beyond where the market would deliver – has been dropped.

The dropping of the proposal, on which a BIS consultation closed only last week, is not because the government is suddenly unconvinced of the need for the Next Generation Fund which the duty would have established; it has been dropped since the political controversy over it would potentially have held up the Finance Bill, which has to include the duty since it is a fiscal measure. This is one of a series of three measures – including also the rise in cider duty – which the government has dropped from the Finance Bill so as to ensure that it can complete its passage through Parliament before Parliament is dissolved later this week. Consequently, the landline duty is very much a victim of the election.

Should Labour win the election, it is likely to be re-instated – the government’s policy has not changed – perhaps in a second Finance Bill after the election. However, it is disappointing that the landline duty has been dropped since the policy which lay behind it – that of extending high-speed broadband on a socio-economically equitable basis right across the nations and regions of the UK – was both sound in principle and, actually, far more important than the levy itself. Without the levy, and the Fund, the UK has no practical, resource-based response to the need to spread high-speed broadband equally across the UK other than where the market – i.e. the major network operators – decide where it can be done profitably. That is likely to lead to the over-provision of networks in large urban areas and the under-provision of networks in less populated, more rural areas and, in turn, to a widening of the digital divide. It is also likely to contribute to the further economic overheating of the large urban centres.

For its part, the Tory policy on extending high-speed broadband beyond the market is ill-thought: based as it is on a reliance on the regulated opening up of BT’s ducts – a policy with which BT is happy to comply but which, as Ofcom has previously pointed out, is likely only ever to be a partial solution – backed by some money from the BBC licence fee otherwise earmarked for the digital switchover. The digital switchover is due to be complete by 2012 and the underspend in this budget is £200m, which Digital Britain had intended to use to meet its universal broadband service commitment by 2012. Any continuation of this budget beyond 2012 essentially takes money away from BBC programming – thus, for the Tories, killing two birds with one stone but which is likely to mean further cuts in the production of quality media content.

The landline duty was fair in the context in which it was originally put by Digital Britain – that households had received a benefit from falling telecoms prices in recent years and that it was thus reasonable to ask them to share some of that benefit. The Connect Sector of Prospect had always argued that it was a moderate, affordable and specific contribution from consumers towards the cost of roll-out of NGA infrastructure beyond the market, and we also supported it as a welcome sign of the government’s commitment to a policy of ‘industrial activism’.

The decline in consumer telephony bills has been well documented by Ofcom:

Source: Figure 4.55, Ofcom Communications Market Report 2009

The chart shows clearly the falling nature of household telecoms bills, which declined from 3.4% of monthly expenditure in 2005 to 3.2% in 2008 – the same proportion as in 2003. If we focus on the decline in the amount of expenditure on fixed voice and on internet and broadband – i.e. the sums going to the operators charged with responsibility for rolling out high-speed broadband services – we can see that these have fallen by £5.68 per month – at standard prices – since 2003 (a drop of 14.7%). In this context, a 50p/month levy was, and remains, fair.

This decline in return is not a rational basis on which to found an expectation that operators will roll out costly investment in fibre networks in areas where it is even partly speculative. They will, instead, concentrate only on the clearly most profitable areas. That will inhibit the roll out of fibre networks, putting the extension of fibre roll-out some twenty points lower than it otherwise would have been by 2017, and it will exacerbate the divides within the UK.

That would be a disaster for the UK both socially and economically.

FCC loses traffic management case

The US Federal Communications Commission yesterday lost its ‘open internet’ court case against Comcast, the US cable service provider. The case stemmed from action taken by the FCC when it established that Comcast had been throttling traffic from high-bandwidth file sharing services. The court ruled that the FCC had failed to tie its actions to ‘any statutorily mandated responsibility’ – i.e. that it had no powers to intervene in ISPs’ network management policies and practices in the way that it did – and thus in favour of Comcast’s own arguments.

The case had become something of a cause célèbre for ‘net neutrality’ in the US – the notion that internet traffic should not be restricted in any way by those delivering an internet service – and the FCC was putting a brave face on the decision (statements here), re-stating its ‘firm commitment’ to an open internet and noting that, while the decision had invalidated the FCC’s prior policy approach,

The Court in no way disagreed with the importance of preserving a free and open Internet; nor did it close the door to other methods for achieving this important end.

For its part, Comcast re-iterated its commitment to the FCC’s existing principles of an open internet, saying that its only purpose in taking the case had been to clear its name and reputation.

Some of the reporting focuses on the threat to the FCC’s ability to enforce its National Broadband Plan arising from the ruling, which the FCC may seek to deal with by seeking to have the principle of net neutrality enshrined in law, thus giving it the power to compel ISPs not to throttle traffic. The Commission has acknowledged that some of the recommendations in the Plan may be under threat as a result of the ruling and that it is examining each one to ensure that it has adequate authority. In the meantime, some mature reflection on the implications of the decision and the likelihood of change in a political context can be found here [registration required; limited viewing time]

In the UK, the Digital Economy Bill does contain such a power authorising Ofcom, under direction from the Secretary of State, to assess whether ‘technical measures’, including line speed throttling amongst others, should be imposed on ISPs for the purpose of preventing the use of the internet for copyright infringements, and giving the power to the Secretary of State to act on Ofcom’s assessments (clauses 10 and 11). Much of the attention has been given to clauses 17 (and now 18) of the Bill concerning the issue of what to do over copyright infringement, but it should be noted that this is very much the end of the line and that other measures are envisaged before such a stage is reached.

The DEB thus moves the discussion in this country on net neutrality substantially away from an open internet. However, it does so only in the context of copyright infringements – ISPs will not be able to use the law to prioritise traffic to their own content providers or to slow the connections of traffic headed to alternative providers, which was one of the reasons behind the FCC’s intervention with Comcast in the US. Coincidentally, the sites whose traffic was being throttled by Comcast were peer-to-peer BitTorrent sites.

Policies on an open internet, or on net neutrality, are fine in principle but are always likely to fall behind when the net is used for illegal activity, however much in need of reform and updating the law making that activity illegal apparently is.

CBI on public sector pensions

The CBI has put out a report today on public sector pensions (press release; report).

The CBI claims to speak for businesses which ’employ around a third of the private sector workforce’ and to ‘communicate the British business voice around the world’. So, I’m almost tempted to ask ‘what has public sector pensions got to do with you?’ – except, of course, that decent quality public sector schemes highlight the decline into sheer inadequacy of pensions provision across much of the private sector and may also – in somewhat better times – act as a source of pressure on the private sector to improve its own levels of provision. So, the ‘voice of business’ has indeed a very clear reason to intervene in the debate on public sector pensions.

Aside of the usual prejudice in the report – for example, the continued misuse of the total size of the deficit in public sector schemes, as if bill had to be paid now rather than amortised over a period extending well into the future – what is the CBI actually saying should happen to public sector pensions?

No changes to existing accrued rights – that’s clear. But, for the future, what it wants to see is higher retirement ages for all staff, not just new joiners, and for all public sector workers to be moved off defined benefit provision (including career average schemes). Funded schemes (within this context) would be able to choose their own route, while those in unfunded schemes would be shifted into a new type of provision called ‘notional DC schemes’. Here, contributions are built into a series of personal accounts but, instead of being invested in the stock market, are revalued in line with rises in earnings or prices before being used at retirement to buy an annuity.

The CBI doesn’t state what sort of pensions it expects these personal accounts to buy. Over time, and taking a long-term view of pensions investments, simple revaluation is, however, likely to lead to much smaller individual pots than even a ‘conventional’ DC scheme invested in a range of types of investment commensurate with an individual’s age and risk profile. Consequently, notional DC schemes are likely to lead to much smaller pensions.

This leads me to a couple of points:

1. Why does the CBI expect public sector workers in unfunded schemes to have retirement pensions which are substantially poorer than existing DC provision?

2. As a society, do we really want the burden of paying additional state benefits to people unfortunate enough to be in such schemes? The switch to DC schemes in the private sector is already loading the state with additional, and unpredictable, burdens in the future as a result of the pensioner poverty that will be the result; do we really want further burdens from forcing public sector workers into even poorer schemes?

Having a majority of public sector workers in these sorts of schemes would certainly alleviate the potential comparative pressures on private sector employers. Establishing poorer pensions provision into the public sector increases the relative attractiveness of private sector employment – and at no extra cost. It also underpins the removal of the ‘burdens’ on business of decent pensions provision, since it helps to establish existing ‘conventional’ DC provision as the standard. (The burdens on the taxpayer of having a greater number of pensioners reliant on the state for income, and the concomitant reduction in available money to spend on CBI members’ goods and services, is perhaps a concept too far removed from the CBI’s preoccupations and thinking.)

Whether this would lead to private sector employers following suit is uncertain – and perhaps unlikely, since private sector employers are largely interested in containing costs, and switching to ‘conventional’ DC provision tends to do that within existing arrangements establishing pension contributions at fixed levels. So, this move is unlikely to form part of a further general spiral of decline on top of that already in motion. If employers did follow suit, however, it is interesting that the prospect of such poor pensions in comparison with even existing DC schemes is likely to increase pressures on those employers who had gone down such a road to raise contribution rates, since this is one of the few variables that could be changed to improve the eventual outcome.

[Same day edit: The FT‘s report of the story carries a reference to there being a cash balance element to the CBI’s proposals (in which the lump sum that members receive on retirement prior to conversion into annuity reflects a percentage of pay for each year worked, revalued in accordance with prices or earnings). If true, this would alter some of the emphasis of the last half of this post – since the pensions thus generated would be better than it envisages (while remaining poor). However, while the CBI report refers to cash balance schemes at an earlier point in the text, I can’t see there being a cash balance element to the way it writes up its proposals for a notional DC scheme (and, anyway, if it’s intended to be a cash balance scheme, why call it ‘notional DC’?]

T-Orange to build afresh?

Concluding the week with some news which has only just come to light, it’s been rumoured that T-Orange, which said today that it had successfully completed its joint venture following regulatory approvals earlier this week, and which may – or may not – be about to re-brand itself TOM, is considering building a brand new network for itself.

T-Mobile is thought to have been discussing with its network build partners, Nokia Siemens and Huawei, building out new base stations right across its spectrum coverage, from 900MHz to 2.6GHz. This would enable it to offer seamless services across different frequencies and regardless of the type of handset being used by the consumer, as well as improved capacity based on a network offering greater speed and efficiency and, therefore, a more attractive consumer prospect. Building a new network from scratch means offering such potential to consumers earlier than rival operators, providing a commercial boost to the JV, while others have also commented that building a new network is, in cost terms, likely anyway to be no more expensive than T-Mobile integrating its network with that of Orange – itself likely to be a significant project – since new technologies have emerged which allow base stations to be built on the basis of low power and which are, therefore, both cheap and, presumably, energy efficient.

These are all important considerations not least on top of last week’s news from Ericsson that the 400m mobile broadband subscriptions now generate more network traffic than 4.6bn mobile subscriptions [registration required; limited viewing time]. Worldwide data traffic has surged by 280% in each of these last two years, clearly putting immense and increasing pressure on mobile network capacity as well as on capital expenditure resources, since data revenues are not expected to surpass mobile revenues anywhere in the world until 2014 (when Japan is likely to be the first).

It’s just a rumour – and indeed, the reports suggest that Orange was somewhat of a cooler partner to the idea. If true, however, its significance will lie in two things. Firstly, from a trade union perspective, such an activity would see the creation of network build jobs during 2012-2014 once the JV has decided its strategy as a single operator – a welcome boost on top of what is likely to be job losses as the operators seek to realise efficiency gains of £3.5bn in network operation and capital expenditure savings, as well as other synergies. As the reports suggest, the move towards higher frequency services is likely to mean extensive network re-builds for other operators so there may well be knock-on effects on network build jobs in other areas, too.

Secondly, it should be recalled that one of the reasons that the Office of Fair Trading withdrew its opposition to the JV was the agreement reached with 3 UK over access to the JV’s network. It is to be hoped from a regulatory and competition perspective that this agreement was watertight as regards any new network instigated by the JV, and did not confine itself to access to existing base stations. These pages have argued previously that public competition policy was, as a result of this private agreement, essentially made subject to an arrangement which was not open to public scrutiny, while commentators at the time suggested that a focus on one or other network of the merged entity may well be to the detriment of maintenance investment in the other, and to any commercial agreements reliant on the other network. Such suggestions may well come true if the agreement is not ‘future proofed’ as regards access by 3 UK to any future networks the JV builds out jointly.

Ofcom lowers the rate

As if needing to prove what good value for money it represents, Ofcom followed up yesterday’s announcement of its annual plan and budget with its long-awaited proposals on mobile termination rates. These will see termination rates – the costs levied on other network providers when calls made from their networks land (or ‘terminate’) on mobile networks – fall steadily over the lifetime of the next period of mobile regulation (between 2011 and 2015) from 4.3p/minute now (and 4.6p on 3’s network) to 0.5p/minute. Termination rates were 23p/minute in 1995.

Ofcom believes that this cut will lead to cheaper calls and, although it is a little shy of giving figures, partly because there is no regulatory compulsion on operators to pass on the savings, other than via other regulated products (as well as via the weight of Ofcom’s publicly-expressed expectations in this area), the newspapers (e.g. here and here) have happily done them for it (although as The Guardian‘s version suggests, this is likely somewhat to overstate the case). Nevertheless, the suggested annual costs stripped out by the move represent some six times Ofcom’s total annual budget.

In contrast to yesterday’s announcement of the outcome of its investigation into the pay TV market, there was no subsequent wailing and gnashing of teeth from those subject to the announcement (though Orange has had one or two things to say [registration required; limited viewing time]; while, in contrast, Terminate the Rate, supported by 3 and BT, amongst others, was clearly rather chuffed). Mobile operators are likely to challenge the proposals during the consultation period but, publicly, there has been little reaction from them. This could be because operators have already discounted the cuts – which have been long expected, given their origins within EU attempts to lower mobile termination rates under Viviane Reding, the previous Commissioner – or because, as Robert Peston suggests on his BBC blog, they are likely to respond by shifting their business model to accommodate them. It is also true that, as the next charge control period comes to an end, pressure on these rates is likely still to be present, as Ofcom believes that:

As the market adapts [i.e. to the current proposed reductions], we believe that further reductions in termination rates will promote competition, the development of innovative tariff packages and the growth of genuinely converged fixed and mobile services. [para 1.13]

The review of termination rates – these are proposals and, as such, are subject to consultation – will conclude with a statement later in the year.