Connected Research

Union policy research in the 21st century

Posts Tagged ‘Privatisation

Australian government issues draft broadband law

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The Labor Government in Australia yesterday published its draft ownership, governance and sale framework for NBN Co, the new company being established to fulfil a 2007 manifesto commitment to form a nationally-owned high-speed broadband company charged with rolling out major investment in a A$43bn (£25bn) fibre-to-the-premises network across Australia.

The plans go hand-in-hand with a proposed – and evidently controversial – plan to compel (albeit on a voluntary basis) the structural separation into wholesale and retail arms of Telstra, the former monopoly telecoms company. A bill detailing the break-up was due to be laid before the Australian senate this week, but looks to have been delayed as ongoing, and highly complex, government talks with Telstra continue over the valuation of telecom assets being folded into NBN (leaked, apparently by mistake last October, as being between A$8bn and A$40bn, depending on assumptions). [Edit 26 February: It was indeed delayed [registration required; limited viewing time] as a result of what the Labor Communications Minister describes as filibustering by the conservative opposition – a situation which he later decried in the following terms: ‘If the opposition is serious about improving competition in the market, they need to stop playing opposition for opposition’s sake and allow the debate to begin.’ So, a centre-left government launches a Bill designed to enforce the structural separation of the telecoms company in the name of boosting competition – but this is filibustered by conservatives. It’s an upside down world.]

Meanwhile, more on the union view on structural separation and NBN appears at the pages of the relevant part of the CEPU here.

The draft framework – which has also been controversial, not least because it appears at least partly to be being used as a tool in the negotiations with Telstra – outlines that the government will continue to hold a majority stake in NBN (i.e. at least 51%) until five years after the network is ‘built and fully operational’, scheduled for mid-2018, after which point it will essentially be privatised. The ultimate decision here, however, could be delayed annually, and perhaps even indefinitely.

The key part of the draft as regards the structural separation argument is that NBN will be a wholesale company, selling wholesale products on an open and equal access basis, and that, while private participation (up to 49%) in the venture is welcome, no retail operations are allowed (though the goverment does seem to be reserving the right for NBN to sell services on a retail basis to ‘certain end users, for example government agencies’). This therefore puts Telstra in the position of either agreeing to structural separation, and folding its assets into NBN (for which the terms of engagement have already been announced), or else taking the chance of competing with it via its own infrastructure build. Additionally, the right reserved to NBN to sell retail services to government agencies also adds pressures on Telstra as a result of its own government contracts, the loss of which would clearly undermine its commercial operations.

Comment on the plans – billed as an ‘exposure draft’ – is being taken until mid-March, with legislation due later this year.

Of interest to the UK? Certainly, as regards an alternative (albeit very difficult, given the structural separation aspects) model of rolling out a fibre access network – and one owned by the government, to boot (at least in the first instance). Secondly, there is evident interest from a UK perspective given the circumstances of the creation of Openreach in the UK – when BT was forced to separate itself functionally to avoid a Competition Act reference. Thirdly, the comparative scale of the investment needs to be noticed. Rolling out fibre-to-the-premises across Australia is an immensely significant project which, if the predictions about broadband investment are right (and these things can be subject to hyperbole), should deliver an enormous boost to the Australian economy. The population spread around Australia is important – most of Australia’s 21m people live around the coast – so this changes the dynamics of the investment. Nevertheless, this is a huge sum, both on an absolute and a per-head basis, on which, leaving aside the controversial aspects with which the plans are associated, it is good to see a government taking a lead.

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Written by Calvin

25/02/2010 at 1:59 pm

BIS Committee has say on Digital Britain

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Media reports this morning are focusing on statements from the Parliamentary BIS Committee on the government’s proposals in respect of Digital Britain (BBC, from where most of the quotes in this post are taken; Reuters UK). However, nothing – press release; statement; report – has yet appeared on the BIS Committee’s page. [Edit 24 February: report now available.]

I’ve no reason to doubt the veracity of the reports; I’d just like to read the full thing. The reports are mostly driven by the press comments of the Committee Chair and seem (partly as a result) to reflect Tory party policy on the issue, about which this blog has been critical, even though the largest number of MPs of the Committee are Labour MPs. (The BBC report also has a reaction from the government.) Even the call for a full-time minister to look at encouraging investment (Reuters report) is, in the light of the new statutory duties on Ofcom, essentially a reflection of Tory policy to have policy issues under the direct control of ministers rather than Ofcom.

Press comment has focused on two aspects: firstly, the ‘ill-directed’ broadband levy; and secondly the plans for a universal service commitment to a 2Mbps broadband service.

The Committee is reportedly critical of the broadband levy on the grounds that it:

Places a disproportionate cost on a majority who will not, or are unable to, reap the benefits of that charge.

Dating back to the publication of the Digital Britain final report last June, these pages have supported – and continue to support – the notion of the levy as being an important contribution to developing access to high-speed broadband on an equitable and cohesive basis across the nations and regions of the UK; and they also agree with the government line that the levy is ‘modest, fair and affordable’. The Committee’s reference here is slightly odd: given that high speed access won’t be delivered to the majority on the basis of a reliance on the market then, by definition, a majority will benefit. Of course, not everyone paying the levy is, or wants to be, online – and subtracting these from the equation I imagine accounts for the Committee’s view (when we also consider that the government target is 90% of homes with fibre access by 2017). But I suspect that those not online, or wanting to be online is – or will be – a reducing number, not least partly as a result of the better services which can be delivered as a result of high-speed access, while an increasing amount of public services is intended to be delivered online: there is a strong link between the government’s broadband plans and its aims for public services.

A flat-rate levy is always going to be regressive – but then, so is universal postage. And I think the analogy is fair. A unified postage stamp pays for a service from A to B regardless of where you are in the UK; the broadband levy is designed to provide access to high-speed services on a similarly cohesive and solidaristic way. The Committee, according to the press reports, appears to have forgotten that there will be social concessions for those on light user schemes. And notions that people who are not interested in particular services should not have to pay for them is a dangerous road to go down for the delivery of public services – and a national fibre access network is a public service (albeit one delivered by a privatised company).

The Committee’s solution here is the market, as well as a small concession via the ‘reduction, or even temporary removal’ of business rates on fibre optical cable. That will help, certainly – but, I suspect, only around the margins where fibre investment decisions are being taken by the market. And it might well contravene EU state aid rules, too.

The comments on the universal service commitment are, however, interesting. The Committee appears to argue that the 2Mbps should be a minimum speed delivered:

Under normal circumstances, to all users at all times.

Disregarding the opening (and rather meaningless) caveat, that’s definitely a supportable approach: the 2 Mbps speed that is delivered should be a minimum one, not one that is ‘up to’ 2 Mbps, since that itself is the minimum speed by which high speed broadband can be defined (i.e. the point at which watching quality TV pictures is feasible). There are technical issues around this, not least in the sense which mobile access can be called upon to deliver part of that commitment, as Digital Britain emphasised, but the call for a more ambitious target for universal service by 2012 is a welcome one, not least since it also re-asserts the importance of the 2012 universal service commitment in spite of Tory plans which appear to disregard it. (And, while they’re about it, they need to do something also about upload speeds and defining how regularly that commitment will be reviewed to ensure it remains relevant, too.)

Written by Calvin

23/02/2010 at 9:00 am

National Express receives private equity bid

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CVC, a private equity group, has confirmed, according to The Guardian amongst other sources, that it is the bidder for National Express. The share price of the transport group has been rising all week owing to speculation as to the identity of what has been up to now a mystery bidder.

CVC is reported to be working in conjunction with the Cosmen family, which is National Express’s biggest shareholder at 19%, on an all-cash bid for National Express, following just hours after First Group, another transport operator, confirmed it would not be bidding further.

Corporate takeover activities are not usually the interest of this blog – but it is a rather slow news day for one thing and, more importantly for another, my interest here was piqued since National Express, which runs the East Coast railway franchise to which I give rather too much of my disposable cash, chose earlier this month to hand the franchise back to the government on the basis, essentially, that it had overpaid for it in the first place and could not afford the profitability payments the government was demanding (and refusing to re-negotiate). National Express is still handling the franchise, with the return of it to the government expected at the end of the year.

It appears that Lord Adonis, Transport Secretary, has a role to play here as the government must sanction any bids for any of the franchises, taking into account not least the new owner’s ‘plans to honour franchise obligations,’ including any proposals in respect of its long-term future. So, this is likely to involve the government in sanctioning (or not) the private equity takeover of the east coast main line franchise (even if only for six months). Now, presuming a CVC takeover of National Express does indeed result from its ‘indicative proposal’, this is interesting.

1. It means that a private equity firm will gain a role, at least temporarily, in running a part of the UK’s railways. Aside of the reaction of the rail unions (there is not yet anything on the RMT website about that), there is a debate to be had about whether a private equity firm should be involved in running a public service (although in reality that’s largely a pass that’s been sold long ago).

2. The plans of the new owners for the franchise are evidently not yet known. It may be that they will carry on with it, having either identified contract savings that National Express has not – and here see the aside in point 1 – or else on the grounds that they think they will be able to persuade Lord Adonis to carry out the re-negotiations that he has so far failed to do. It is likely that CVC is able to pay for top quality legal advice so, if this is the case, it is to be hoped that the contracts are good ones. If so, there is some amusement to be had in a private equity firm having to return cash to the government on the basis of the existing contracts.

3. If they choose instead to carry on with the return of the franchise – then, who made that decision? This is, clearly, the more likely scenario than CVC choosing to carry on with the franchise. The return of the franchise may well have precipitated the bid – but, given that partners of CVC are already the biggest shareholders in the company, it is perfectly possible that the return of the franchise was essentially a (private) condition of the bid being made. It is also likely that CVC has already had a good look at all the contracts (bearing in mind that Adonis also wants National Express to return its other franchises too, rather than cherry pick between the franchises it owns). Both look more than a little dubious. (Did someone say insider trading?)

If this is indeed the case, and the franchise has been returned as a part of the condition of the bid being made, how can Lord Adonis now sanction the CVC bid given the need in such circumstances to examine the new owner’s long-term plans for the franchise and especially given that the new owners clearly had no intention of abiding by the obligations of the franchise?

Proving that may, of course, be somewhat difficult…

Written by Calvin

24/07/2009 at 7:15 pm

Posted in Politics

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