Connected Research

Union policy research in the 21st century

Posts Tagged ‘Connect Sector

The ‘Google tax’ and net neutrality

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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.

Written by Calvin

27/04/2010 at 4:28 pm

Pension Trends: ONS speaks on contributions

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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?

Written by Calvin

12/04/2010 at 4:18 pm

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

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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.

Written by Calvin

08/04/2010 at 4:30 pm

New powers for Ofcom also dropped

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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.

Written by Calvin

07/04/2010 at 3:51 pm

Landline duty dropped

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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.

Written by Calvin

07/04/2010 at 12:16 pm

Future pensions: the view from the NAPF mountain

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A state pension worth around 1/3rd of average earnings to provide a robust floor of benefits, supplemented by a workplace pension built around auto-enrolment and mandatory contributions, the whole supervised by a new regulatory settlement based on a standing Retirement Savings Commission analogous to the existing Low Pay Commission.

That’s the vision of the National Association of Pension Funds, the industry body representing scheme sponsors, in Fit For the Future, a new report on pensions published yesterday (press release; full report). Praised by the TUC as offering ‘serious and constructive proposals for the future of pensions‘ there’s a lot in the report to commend, as well as some items for debate.

It’s hard to disagree with the NAPF’s view of the pensions landscape: workplace saving has fallen dramatically both in terms of numbers and in terms of the value to ordinary workers of the pensions generated there. Rightly, the NAPF doesn’t spend too long analysing how this situation has come to pass, but is oriented more towards what can be done to stop the decline and get the principle of workplace saving back on track.

There are many factors which help to account for why this situation has come to pass, as these pages have already argued; though it would be perhaps rather churlish in this context to remind that decisions to close schemes appear to stem largely from the unsympathetic and ruthless cost-cutting actions of scheme sponsors themselves. The Connect Sector of Prospect has some experience of negotiating alternatives where employers are looking to move away from defined benefit provision; outside this experience, that employers have tended not to stop anywhere in the middle of the pensions continuum but have leapt straight from defined benefit to defined contribution is less of a reflection of the lack of risk-sharing alternatives, as the NAPF directly suggests, than of the realities of employment relations in the 1990s: employers have done so because they can; and because the will to do something more creative (but evidently more costly) has not, except in a few, admirable cases, been found.

Despite the acknowledgement that ‘workplace pensions remain central to providing people with an adequate
retirement income’ and that workplace provision is ‘at the heart of good pension provision’, the central role in the NAPF’s vision is occupied not by workplace saving, but by a beefed-up state pension scheme – perhaps rather surprisingly, for an organisation representing (workplace-based) scheme sponsors, but perhaps a reflection that what has been lost will be hard to replace other than by slow incremental steps, starting from the 2012 reforms. Even within the context of workplace savings, the primary place in the NAPF programme is taken by a suggestion for a maximum of twenty ‘super trusts’ whose role would be to offer members of small schemes the low charges facilitated by the benefits of scale – a worthwhile, and supportable, idea alongside the NEST but whose contribution to revitalising workplace provision might well turn out to be less than dynamic.

Other suggestions from within the workplace savings context include offering ‘core’, unindexed pensions to scheme members only (it seems to me that indexation is an under-appreciated pensions benefit; while a focus on the scheme member only might be supported when retirement is far away, but deeply regretted once into retirement since ensuring loved ones are provided after your own death becomes much more important the closer you get to that point); improved mandatory contributions to the NEST (definitely supportable); better advice to accounting standards bodies on accounting for pensions (likewise); and a new statutory objective for the Pensions Regulator to promote good pensions provision (clearly a good idea).

So, there are some worthwhile things to explore in this document and the NAPF is to be congratulated for putting it out. It would be a shame if its publication at this point in the electoral cycle led to its many good ideas being lost to public debate. Nevertheless, in the meantime, I’m reminded once again that quality pensions expanded and became more beneficial at a time of labour strength; their contraction at a time of labour weakness simply proves that advances in benefits have to be won by collective action and are not given away by employers for free.

Gordon Brown on high-speed broadband

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Prime Minister Gordon Brown has today made a powerful speech promising universal access to high speed broadband services by 2020. The No. 10 website today also has the story as its lead item, containing a full transcript).

The reason for the universal aspect of the promise is simple social justice – that high speed broadband ‘must be for all – not just for some’, in contrast to alternative plans reliant on the market alone which would see access determined ‘not even by need or social justice, or by the national interest, but by profitability alone’, ensuring the creation of ‘a lasting, pervasive and damaging new digital divide’. Under such a reliance, the Prime Minister continued, the UK would be ‘split between a fast-track and a slow-track to the future, between those fortunate to live in densely-populated areas and those not’.

The Connect Sector of Prospect has been arguing on precisely these lines for some time (and will be doing so again to the continuing BIS consultation on the Next Generation Fund. NB: I’ve reported the broken link; you can also find the consultation document here). Consequently, it is very pleasing that the Prime Minister is making the same points.

The commitment to a 2020 vision for high-speed universal broadband access builds on the government’s existing commitment to high-speed broadband to cover 90% of the population by 2017, towards which goal the Next Generation Fund is designed to assist and which the Prime Minister justified by saying that ‘if every household is to benefit, then it is fair that every household contributes’.

Interestingly, the aim to have universal access by a decade matches the timeframe for the Federal Communications Commission’s plans in the US (about which I blogged last week), though the approaches are otherwise quite different, based around the two headline issues of coverage and speed – which are clearly linked together in terms of investment (I would not go as far as saying that there is a trade-off between the two, but there may well be in terms of the ability to provide investment which meets required rates of return). The US approach builds on universal service at a minimum speed, but is otherwise dominated more by a high speed, ‘big bang’ (or should that be ‘big bucks’?) type of model; while the UK is more inclined to one based on universal coverage and a more incremental pace to speed.

Ensuring that the digital divide does not widen is the right approach – access to a high-speed broadband service is indeed an essential service (the Prime Minister repeated in his speech that superfast broadband is ‘the electricity of the digital age’). It should therefore be delivered on a universal, equitable basis across the nations and regions of the UK and it should be the preserve of every household. But the speed of the service is important, too, not least from the point of view of securing the economic benefits to the UK as a whole of high-speed services, and we must therefore ensure that we see the existing plans for high-speed access as part of a continuous approach to investment in the industry which does deliver guaranteed high speeds, and in both directions.

Written by Calvin

22/03/2010 at 10:50 am