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All together now

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Last week InternetNZ organised a forum to discuss the Telecommunications Act discussion document. The document proposes setting the price that Chorus charges for access to the copper network above the Commerce Commission’s recommendation; meaning we all pay more.

The discussion was held under Chatham House rules, and TUANZ CEO Paul Brislen described it as “a remarkable meeting”. He provides his take on the issues confronting the industry as discussed at the meeting.

NOTE: This piece first appeared in the TUANZ This Week newsletter and in IITP’s Newsline

It takes quite a bit to get every telco, ISP and user group to agree on something and while I’m sure there are a couple of businesses that don’t mind the ICT Minister’s copper tax, for the most part there was outrage.

Outrage that after building a regulatory system that provides certainty and incentives to invest the government will override it for such a flimsy reason.

The upshot is that the only reason that the Minister has directed the ministry to come up with these prices is because Chorus’s share price will be affected.

That’s it.

If we give Chorus an extra $100 million a year (the amount its estimated Chorus will earn if the higher copper price, as suggested in the discussion document, is approved) it won’t result in a faster network build. It won’t result in a better network. It won’t result in a larger network – it will simply result in Chorus meeting its contractual obligations to build the Ultra Fast Broadband network (Chorus has argued it needs higher copper prices to fund the fibre rollout).

In the meantime, investment in unbundling is not only stranded, but actively penalised with an increase in the costs for unbundled lines in one of the “options” put forward, and the risk to the Local Fibre Companies (LFCs) is increased because Chorus will be allowed to aggressively lower its prices for copper broadband in those areas where someone else is building the fibre network (Chorus has about 70% of the UFB build).

The incentives to invest are removed, the ability to compete by differentiating is removed and everyone in the industry aside from Chorus is left wondering just what the rationale is for this decision.

One thing we did learn is that the discussion document’s three options are not the only options. TUANZ will be submitting that the status quo should be restored, that the Commerce Commission should hold sway over telco regulation and the Minister should stick to policy work.

There’s another reason why this should happen – the World Trade Organisation.

New Zealand is a signatory to the WTO and its “telecommunications annex” clearly says that governments should have an independent regulator so as to avoid conflicts around government investments. It should also avoid cross-subsidisation like the plague.

The good news is, there’s an enforcement arm in Brussels. Perhaps it’s time we wrote them a letter.

On Monday Chorus reported a higher than expected net profit of $171 million on revenues of $1.057 billion in its first full financial year. In commentary posted on the NZX website, Chorus pointed out that the outcome of the regulatory review will result in a reduction in future earnings.

“While these regulatory headwinds remain, management is pleased with the principled approach the Crown is taking to the regulatory review”, said CEO Mark Ratcliffe.

“We’re seeking a clearer, more aligned regulatory environment that delivers the right incentives to encourage the transition to our fibre network, and help New Zealand realise the productivity and economic benefits UFB and RBI can deliver.”

 

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Having your cake and eating it too (and creating a monopoly along the way)

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Lost in the noise of the Telecommunications Act Review
discussion document is a rather alarming paragraph about Chorus’s copper lines.

The review usurps the Commerce Commission’s role as
regulator and gives the job to the minister on the basis that the minister
wants the fibre uptake to be successful.

In order for the fibre rollout to be successful it has to
have lots of users signing up for it. Fair enough – I agree entirely with the
outcome, just not with the process by which we’re being pushed down that path.

The minister argues that in order for customers to move to
fibre the price of copper lines can’t be dramatically lower than the price of
fibre, otherwise nobody will move.

I disagree – fibre and copper aren’t the same product and
while my copper line might be adequate for my use today, by the end of this
year it’ll be straining at the edges and by the end of next year it’ll be intolerably
slow.

That’s because my kids are now both of an age where they
have serious homework and that homework is delivered online. As soon as they
get home from school they want to use the computer. My wife uses that downtime
to catch up on last night’s Shortland Street and so she too is using my
internet connection.

Copper barely copes with this. As it always has been, user
migration is dependent on there being a reason to move and content is that
reason. Fibre is not the same product as copper.

But let’s put that aside for the moment. Let’s assume the
minister’s goal is to have as many customers as possible moving to fibre and
that in order to do this we must artificially mark up the price of a copper
line.

The discussion document lays it out in just these terms. It
describes the fibre roll out as a “once-in-a-generation” upgrade and says the
real benefits to New Zealand come from those applications that use UFB speeds.
It goes so far as to quote the Alcatel-Lucent report that suggests economic
benefits of nearly $33bn over a 20-year period.

Clearly then, we need to usher users over to the fibre world
as quickly as possible for the benefit of the economy as a whole.

All of which makes me wonder why the minister is so keen to
stop that happening in those parts of the country where Chorus isn’t building
the fibre network.

Chorus has the lion’s share of the network build, but
Northpower is rolling out fibre in Northland, UltraFast Fibre is doing it in
the Waikato, Bay of Plenty region and Enable is doing its work in Christchurch.

All three Local Fibre Companies (LFCs) are ahead of
schedule. All three expect to finish sooner rather than later and all three are
signing up more customers than the average sign-up rate would suggest.

Yet the minister makes it clear in her discussion document
that Chorus will be allowed to pocket price its copper wholesale service to
compete for those customers who live outside its fibre region.

“Chorus can set wholesale prices below the regulated price
cap to match competition from fibre in those areas, if necessary to compete
effectively with the LFCs.”

We’ve already seen Chorus overbuild existing fibre networks
such as The Loop in Nelson and Inspire.Net in Palmerston North, and now it gets
to use its existing network to compete for customers against the government’s
fibre network around the country.

Surely if the drive to move to fibre is so great that Chorus
must be given a leg-up in terms of its copper pricing, the same rule should
apply in favour of the LFCs and Chorus not be allowed to compete by reducing
its copper prices?

And conversely, if it’s OK for Chorus to reduce its price in
these areas, why is it not OK for the rest of the country as well?

Don’t forget, the Telecommunications Act explicitly allows
Chorus to buy up the three smaller LFCs without triggering the Commerce
Commission’s anti-monopoly alarm. The Commission is barred from investigating
any such purchase on the grounds of lessening competition by law.

I can picture a scenario whereby Chorus depresses the market
for fibre in the three LFCs’ home territories while keeping copper prices high
for the rest of us. Once the LFCs start to struggle, Chorus can buy them up for
a song and before you know it we’ll have one network operator for the country
as a whole.

As we said during the ten-year regulatory holiday debate, we’ve
just spent a decade ensuring that one network operator play nicely with the
rest of the market, do we really want to create another monopoly asset with no
regulatory oversight?

 

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Collateral Damage

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Hat tip to former InternetNZ Chief Executive Vikram Kumar
for his discovering that the TICS and GSCB bills include forcing telcos to
install backdoors into their networks.

This goes a long way past “making sure the data can be
handed over to the authorities” which we’re still unhappy with and goes a long
way out of my comfort zone, especially given the way international intelligence
agencies are using their powers around the world.

So what’s driving the government rush to enact these laws?
Can it be that New Zealand is a hot bed of international terrorists and that we
need to severely curtail public freedoms in order to ensure our on-going
security?

Clearly this isn’t the case. Nor was it the case when the
Urewera raids took place under the auspices of anti-terrorist activity –
charges that were later withdrawn and eventually dropped entirely from the
case.

But even that wasn’t the start to all of this. An online
chat with Judge David Harvey reminded me of the Crimes Amendment Act,
introduced in 2003 which took away our right to remain silent.

Sorry, did you not realise?

If you own a computer (roughly 110% of the population these
days) you’d better know exactly what’s on it, including those pesky system
files that you’ve neither seen nor looked at, because under the Crimes
Amendment Act, you’re entirely responsible for files on your computer.

In addition, if you have encrypted files (I presume I have)
then you’re required by law to hand over the encryption keys to those files.

So if, for argument’s sake, you have a system file somewhere
that you’ve never seen and which you’ve no way of decrypting, you’re still
responsible for it and if a nice policeman taps you on the shoulder and says
“decrypt that file” you’re up for three months’ jail and a fine of $2000 if you
don’t comply.

Harvey described that as synonymous with a police officer
asking you where you were “on the night in question” and you refusing to answer
– something you’re perfectly entitled to do 
– and then ending up in the cells for three months.

Even with that level of intrusion we aren’t quite at the
source, because I remembered an even earlier conversation about the
International Law Enforcement Telecommunications Seminar (ILETS).

In 1999, ILETS was telling police representatives from
around the world that what the world really needs is a terrorist event of grand
enough scale that the citizens will clamour for police intervention on a
massive scale. Indeed, ILETS (of which New Zealand was a member) encouraged
participants to draft legislation and PR strategies ready for the day when such
an event would occur and which would then give these agencies the support
needed to get bills passed in the various parliaments.

ILETS was set up by the FBI in the early 1990s and included
representatives from New Zealand, Australia, the UK, US and Canada (sound
familiar?) to promote a “universal wiretap ability” in the newly emerging
internet world.

Governments would be encouraged to gradually allow police
and affiliated agencies more powers to monitor and track movements online so as
to ensure police agencies were able to keep up with criminals. Terrorists were
just an excuse.

From there we moved on to the Search and Surveillance Act, introduced in 2012 and the expansion of police powers that included. 

Today we face the introduction of the badly flawed GCSB bill
and shortly, the TICS bill. Both will enable relevant security agencies (and
the police, and potentially IRD and potentially all manner of other government
agency) to access our most secret data and indeed track our real-world
movements thanks to those handy GPS-enabled tracking devices we all carry.

I’m all in favour of the police having the right tools for
the job. If there was evidence that nefarious agents were using encrypted
pathways to communicate and to plan illegal activities, that massive online
money laundering were taking place, that terrorist cells were active or even present
in New Zealand and that we faced a clear and present danger, then I would
support giving the right agencies the right tools. But no such evidence has
been presented or even hinted at, and the badly-drafted laws mean our nascent
cloud computing industry might well be snuffed out before it gets off the
ground in a commercial “blue on blue” incident.

New Zealand needs access to world’s best IT practices if
we’re to compete. We can and should grow our own businesses to take part in the
global economy. We should be able to buy in the best of breed hardware and
technology needed to enable our economy to grow.

Yet these laws mean we won’t be able to do that. Local
businesses won’t be able to deploy internationally because our laws mean
they’ll have to hand over sensitive customer data to New Zealand officials, and
who would buy such a product? International businesses will have to decide
whether or not to operate in such an environment locally, and some businesses
could potentially be excluded from New Zealand because of the laws themselves.
Will Apple or Google chose to operate in New Zealand under laws that contradict
and are explicitly outlawed in the US? Will Huawei be able to build world class
infrastructure here if they’re not on the “friendly” list?

The collateral damage from these bills has the potential to
be huge. The cost of implementation alone is likely to be massive and will be
borne by the telcos and network operators who will, of course, pass it on to
customers, but the lost opportunity for our ICT industry could potentially
dwarf even that price.

Ian Apperley, an independent cloud computing consultant who blogs at whatisitwellington.com, has written a great piece about the potential size of the market and the cost if we miss out.

It’s a quick and dirty economic analysis but I suspect that’s more than we’ve undertaken at government level.

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Intervening to keep prices high

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The Commerce Commission is pressing on with its
determination of copper wholesale pricing.

I’ve been asked why the Commission would waste everyone’s
time and money on this when the Minister, Amy Adams, has decided to ignore it.

The answer’s simple – it is legally required to undertake
the review. The Telecommunications Act was amended in 2010 by the current
government to include the move from “retail minus” pricing to “cost plus”
pricing for wholesale service.

The expected drop in price was considered enough of a risk that
it was outlined in both the Ministerial Regulatory Impact Statement and Chorus’s
own float prospectus document (page 80).  On top of
that, the minister of the day, Steven Joyce, included a three year delay so as
to allow Chorus to get its house in order in plenty of time.

The difference in approach between the Commerce Commission
and the Beehive is quite extreme.

The Commerce Commission is comparing our pricing regime with
others around the world, benchmarking against those countries that have similar
approaches to wholesale. There aren’t many, only two in fact, but they are
pitched at about the same price as the Commission’s draft determination. That
is, somewhere in the $8 to $10 per line per month bracket.

The Minister has ignored international comparisons
altogether.

The Commerce Commission then asks for submissions, puts out
a draft determination, holds a conference, accepts inputs from various parties
(including user group representatives as well as the various telcos and ISPs),
considers all the views and then comes up with a final determination.

The Minister has decided the cost of copper wholesale will
equal that of fibre.

One of the more compelling pieces of information to come out
of the Commerce Commission’s conference came from Graham Walmsley of CallPlus.

CallPlus is one of our tier two telcos – that is, it’s not a
Telecom, Vodafone or Chorus but is a leader of the next tier down.

CallPlus has spent a lot of money on unbundling Chorus
exchanges so as to better control the product that it delivers to end users but
also so as to build a wholesale business of its own. CallPlus sells access to
its network to a variety of other providers and is a very good proxy for Chorus’s
own network costs.

How much does CallPlus charge? It charges between $8 and $10
per line per month.

The Minister thinks that price should be between $13 and
$33.57 and if she chooses the lower price, she’ll increase the cost of an
unbundled line to ensure the overall total matches the price of a fibre line –
$40 a month.

The Minister has intervened in a legally required process in
order to ensure costs don’t come down for users.

 

The Copper Tax

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This month’s After Fives saw the Telecommunications
Commissioner tell us about the state of the industry, revenue trends,
investment and what the future could hold for the industry.

Unfortunately, I’m less sure the future of the
Telecommunications Commissioner role itself.

The government’s stunning move to make pricing decisions in
the Beehive means the role of the Commissioner is, to all intents and purposes,
surplus to requirements, at least as far as the government is concerned.
Suddenly it’s the 1990s all over again.

For close to a decade the government of the day dithered
while Telecom (as it was – Chorus now) sent most of its earnings offshore to
its US shareholders, failed to invest in basic infrastructure, blocked
competitors coming into the market (remember Clear taking them to the High
Court?) and generally offered a very poor service to its customers.

The change in government saw regulation introduced for the
first time, albeit at the light end of the scale. Eventually we empowered the
Commission with teeth to do the job at hand and the industry has flourished
ever since.

More importantly, the consumer has also benefited. We’ve
seen prices tumble as speeds and data caps increase. Increased investment means
we have three cellphone network operators each with extensive networks and more
to come. We have a fibre network deployment underway to satisfy pent up
customer demand. We are addressing rural New Zealand’s broadband needs, and
while I’m clearly in the “more, better, faster, sooner” camp, we are heading in
the right direction.

Unfortunately the government and in particular minister of
communications Amy Adams has derailed all the good work of the past decade with
one announcement.

Chorus’s shareholders’ needs 
are now the key driving force behind the government’s approach to
telecommunications, not consumers.

The side-lining of the Telecommunications Commissioner means
we have no way of ensuring users’ needs are first and foremost in our
regulatory landscape. In effect, the minister will be setting the price of
service directly, with little or no regard for either international
benchmarking or the contract her government signed with Chorus.

The fibre rollout will only ever reach 75% of the population
and most of those users won’t be signed up until after 2020. That means the
quarter of the population who won’t get fibre will forever more be subsidising
fibre users. It also means that most of us will be paying the Chorus tax for at
least the rest of the decade.

This, then, is the heart of the matter – we have a contract
with Chorus that has now been renegotiated without input from the rest of the
industry, without reference to international best practice, without even a
tender process to see what’s available in the market today.

The minister is now entirely responsible for the regulatory
regime in which the telcos operate without the safety net that the
Telecommunications Commissioner brings to that regime. Not only is the
government the investor in the network, it has now taken over as regulator and
that’s an appalling position for the industry to be in.

What next? Will she decide that Vodafone’s 4G network is a
threat to uptake rates on the UFB and regulate Vodafone? Will she decide that
the price of UFB is too low to ensure returns to the shareholders and put up
the price? Will she allow Chorus to pocket price in areas where the other LFCs
are building our network? Will she encourage Chorus to buy up those LFCs on the
basis that having one network operator is better than four?

Governments that invest in infrastructure should stay out of
the business of regulating the same investment. They can’t wear two hats, they
can’t be both investor and regulator. They can set policy directions and try to
encourage investment all they like but if they’ll also regulate to protect
their own investment the whole thing will come apart at the seams.

We now face a monumental struggle to ensure the Chorus tax
is repealed, that the government reinstate the Telecommunications Commissioner
as the regulator and that the Beehive stops introducing more uncertainty into
this sector. It’s too important to leave it up to the politicians.

 

Unprecedented

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When I started at TUANZ nearly three years ago we immediately jumped in to the debate around the government’s new Telecommunications Bill and its ten-year regulatory holiday for whoever built the fibre network.

We pushed hard for the Commerce Commission to have oversight of the industry. TUANZ and various other organisations had worked too hard to get a regulatory regime in the first place to let it get thrown away as a bargaining chip.

The reason we fought so hard is because the previous decade had seen government after government gamed by the incumbent to the point where investment was at an all-time low, competition was non-existent and customers were paying some of the highest prices for the poorest services in the world.

Direct government ownership of the industry had been replaced by complete lack of involvement, to the detriment of both competitors and customers alike.

Finally, in 2001, we saw an inquiry, a review and the introduction of an extremely light-handed regulatory regime that didn’t really work, but was a start. In 2006 the regime was beefed up and finally given the teeth it needed to ensure competition was robust but fair and that consumers were the beneficiaries of the telco sector rather than the victims.

Today, all that has been swept aside. The government has introduced three options for the regulation of the fixed-line copper network for the rest of the decade and all of them involve the Beehive setting the price for wholesale service.

In many ways this harkens back to the 1970s when MPs would debate the price of butter in the House, only this time there will be no debate. The price will be set by the executive and that’s that.

Chorus will be very happy about this. It ensures that the pesky Commerce Commission with its pesky “cost based” pricing model doesn’t get a look in. Instead of reducing the cost of copper broadband to ISPs, the price will remain roughly the same or drop by a couple of dollars.

Telecom will be happy because the government allows Telecom’s homeline service to continue as is, unmolested by change. That means other ISPs, that don’t own the PSTN (ie everyone else) will end up paying more for the same service. Telecom won’t have to unbundle because unbundling is deemed an inefficient use of resources but still gets to sit pretty while its competitors costs increase.

The smaller ISPs, CallPlus, Orcon and the like, who have unbundled will end up seeing their investment derailed completely. The government’s three solutions are a nightmare for these guys as the government will potentially put up the price of an unbundled line.

Customers see no change to their pricing whatsoever. No ISP will pass on a saving of a couple of dollars and that’s the best you could hope for out of this.

The government is the major investor in the UFB and has now usurped the role of regulator as well. Instead of having an arm’s length, independent Commerce Commission, we will have prices set by the minister or, at best a Commission that can only act in a manner that can only be described highly prescriptive.

Instead of an international benchmark, the Commission would only be allowed to set copper pricing by directly comparing with the UFB pricing model, putting aside any consideration of the different service speeds, capabilities, network age and all the rest. The price would be limited to a range set around the cost of the entry level fibre price and that’s that.

I wonder what Vector’s view of this sudden renegotiation of the terms will be. I wonder what international investors think of a government that is willing to usurp the regulator in such a stellar fashion. I wonder what our trading partners think of a regime that allows politicians to replace regulators at a time when the government is also the investor.

I wonder what customers think the outcome will be if we allow the needs of one company to override the needs of both the industry and the users.

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The real problem with the New Zealand economy

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 The New Zealand economy is in damage control mode at the
moment. Let me give you some stats to paint the picture.

New Zealand is a trading nation – we earn US$37.9bn a year
from our exporters.

Dairy exports have risen from 5.9% of all exports to 13%
between 1995 and 2010. In that same period, the number of dairy cows in New
Zealand doubled.

We export most of our goods to Australia (21%) followed by
China (15%) then the US (9%) and Japan (7%).

One company, a collective although really a multination
corporation, accounts for most of that export revenue. Fonterra, which grew out
of a merger of the New Zealand Dairy Group and Kiwi Cooperative Dairies in
2001, has lead that charge and now controls one third of the world’s dairy
trade, exporting 95% of its output.

We are, as an economy, totally reliant on one company for
wellbeing.

This, then, is the heart of the matter. Forget the grubby
pipe and the botulism. Put aside the PR debacle of sitting on the
news for months and then holding a press conference with no information.

That we are utterly reliant on one source for our income is
the real catastrophe here.

In the same time period – 1995-2010 – the internet
revolution came and swept all before it, yet ICT related exports are worth a
fraction of dairying. How did we miss this opportunity?

Diversification is the name of the game and we as a nation,
as an economy have, to mix my farming metaphors, put all our eggs in one basket.

This is the real issue revealed by the dirty pipe. Not that
there’s an issue with process in one factory in the Waikato, but that we are utterly
exposed to an issue with process in one factory in the Waikato. That we are
utterly exposed to one industry for our place in the world.

We need to diversify. We need a concerted government-level
drive to build up our other export earners.

Traditionally, New Zealand has made its money off the land
and the sea. We’ve harvested trees, whales, gold, coal and seals. With the
advent of freezer ships we moved into sheep and beef and yes, dairy goods.

We cannot simply remain reliant on the good weather and
remoteness of our islands in order to survive. We have to do more and we have
to do it now. Arguably we’ve missed the internet revolution and all that could
have come from that, but I’m convinced it’s not too late, but we have to act
and we have to act now.

Forget low-value manufacturing – we simply can’t compete
with China or India. Forget mining – we love our clean, green (well, green at
any rate) environment too much to dig up the national parks looking for oil and
uranium. If there’s any one answer to this issue, it’s ICT.

(EDIT: Hattip to David Farrar at Kiwiblog for the above link to The Economist’s piece on Estonia. We should be doing this) 

We need to encourage our students to go into ICT fields of
study instead of accounting and management.

We need to build an export market that grows much faster
than the 11% year on year we see today.

We need to encourage more investment and more
entrepreneurship in ICT areas and not be too afraid of spending money on
businesses that ultimately don’t succeed.

We need to change the tax laws to encourage ICT developers
to do more.

We need to spend more on R&D (currently we are spending
less than the OECD average. That’s no way to get ahead).

We need to invest more in our ICT infrastructure – from our
national deployments of fibre infrastructure to our international needs with
submarine cables, but also our electricity sector to power all these devices.

We need to do these things because the alternative is that
our global economic output is entirely in the hands of a pipe cleaner in the
Waikato earning, I’m going to say, minimum wage. I’d like it to be a touch more
secure than that.

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Nothing to hide but plenty I don’t want to share

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I’ve had a number of discussions about online privacy,
security and matters of this sort over the past few months.

All too often I’m faced with someone who says “I have
nothing to hide” and who seems to be quite willing to put up with government
invasion of his or her privacy.

I don’t have anything to hide either, but I do keep some
things to myself. I won’t list them but trust me, they’re better off being
conducted behind closed doors with the lights off.

On top of that, I have other things I like to keep private.
My financial matters are nobody’s business but mine and the bank’s. My health
records are likewise quite important to me. Which books I get out of the
library, where I spend my money, who I call and TXT.

As a former journalist the recent spate of attacks on a
reporter’s freedom to do their job irks me. All too often I hear from readers
(or viewers) bemoaning the state of journalism in New Zealand and I tend to
agree. Today I met with an old colleague and we talked about how many of us
there were at Computerworld in its
heyday. We had 11 journalists working on a niche publication – other newsrooms
had far more. Today, the newsrooms have shrunk dramatically, the pay rates are
stagnant and each reporter is expected to churn out more copy with less time to
do it properly.

The one thing a journalist has in his or her favour is the
ability to ask questions and to get answers from people who may not want their
names splashed about the place. Journalists need access and they need privacy
in order to secure the news that quite often someone doesn’t want you to know
about.

Journalism comes in for a lot of flak for its invasive,
intrusive nature and rightly so. I managed to avoid ever having to ask “How do
you feel” or its bedmate, “Will you apologise?” but there are plenty of
journalists who employ such phrases and far worse. I know of at least one who
likes to goad interview subjects to the point of cracking in order to get a more
salacious story and several have been known to deploy much worse tactics in
order to secure a scoop.

But “keeping the bastards honest” is at the heart of any
good journalist’s role. “Afflict the comfortable and comfort the afflicted” is
one of my favourite definitions of the job of journalist (and check out the link to see who said it – oh the irony), but in this case
perhaps there’s a better one: “News is what somebody does not want you to
print. All the rest is advertising.”

It’s vital we have a strong media that can ask questions that
someone somewhere doesn’t want answered. My hat is off to the likes of Lisa
Owen at TVNZ who once served her own organisation with an Official Information
Act request and to Andrea Vance who got the government’s report into the GCSB
ahead of time and ran a story exposing the information before the government
spin doctors had all their ducks in a row.

That’s why privacy, security and our right to know are
inextricably linked. That’s why it’s important we understand how well the
government handles our data, and what limits are put in place, and why it’s
important we understand the GCSB and associated legislation.

These laws give the government security agencies
unprecedented powers of access to our daily lives. I may not have anything to
hide, but I have plenty I don’t want to share and if I do, I want to know it
will be handled with all due care and diligence.

Unfortunately, the government (in various guises) does not
have a good track record on this score. Take a look at this list and then tell
me – do you think we should give the government agencies more access to our
data?

July 2012 – Immigration privacy breach results in staff being fired

March 2012 – ACC spreadsheet debacle

October 2012 – MSD kiosk debacle

November 2012 – Immigration privacy breach

November 2012 – Novopay sends wrong information to multiple
schools

December 2012 – Corrections faxes sensitive data to removals
company

March 2013 –  Ministry of Environment email breach

April 2013 – EQC privacy breach twice

April 2013 – IRD privacy breach

April 2013 – Ministry of Justice security flaw revealed (and a note from IITP about white hat hackers)

April 2013 – GCSB “Kitteridge report” leaked

May 2013 – WINZ privacy breach 

June 2013 – Peter Dunne resigns

July 2013 – Journalists described as “subversion” threat to New
Zealand Defence Force

July 2013 – Andrea Vance’s access records handed to PM’s investigator

July 2013 – Andrea Vance’s phone records handed to PM’s
investigator (and here’s a very good time line of events from Dylan)

August 2013 – Govt admits SIS has a “special protocol” for
spying on journalists

Sundry other “minor” breaches that involved only one or two people’s private information.

The Privacy Commissioner’s annual report last year includes this quote from Marie Schroff and it’s worth repeating here: 

“The public sector can’t afford to be complacent. It’s quite clear that agencies holding large amounts of personal information need to place greater value on that information asset.

“They need to develop strong leadership and a culture of respect for privacy, as well as day to day policies and practices to provide trustworthy stewardship of our personal information at every level of the organisation.

“There has been far too little focus on the fact that there are real people behind the masses of information that government agencies hold.”

 

Let’s go shopping

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The Australian government has released its parliamentary
inquiry into IT pricing and it confirms what we’ve always known – US companies
charge us foreigners more for the same products, regardless of cost of
delivery.

Any business owner will tell you, you don’t base your
product’s price on how much it costs to make the product but rather on what the
market will pay for the product.

In the case of some big-name US brands, they’ve followed
that remit to the letter. Goods both physical and digital have been priced
according to what they think the local market will pay, and typically that’s
meant paying more.

This is a double-edged sword. I know of at least one UK band
that refused to tour in New Zealand because they were told that UK rates for
concerts converted into New Zealand dollars made the concert too expensive.
Better to have a local price point that would mean money would still be made
but which wouldn’t result in New Zealand fans mortgaging their houses in order
to see the show.

On the other hand, charging locals more for a product
because you can has led to some companies coming a cropper. Adidas, you’ll
remember, figured out that Kiwis would pay a lot more for an All Black replica
jersey than, say, Germans would and so priced its products accordingly.

These days we have the internet and we can compare and
contrast pricing. The world of regional variation is all but dead and global
prices are the new standard, yet still we find US and European companies in
particular willing to engage in dubious pricing practices “because they can”.

I know of at least one New Zealand corporate which buys all
its Microsoft licences through a US subsidiary because it saves between 30 and
50% on the price and that’s just the tip of the iceberg.

So what has the Aussie report recommended? Well, the
parliament is going to monitor pricing for the foreseeable future to monitor
the situation. It’s also looking to aggregate educational institutions’ needs
to buy at a better price and will consider introducing an all-of-government
model if the educational piece proves useful.

But most interestingly, the report recommends broadening and
strengthening Australia’s parallel importation laws “to ensure it is effective
in allowing the importation of genuine goods” and to revisit the copyright laws
with a view to “clarify and secure consumers’ rights to circumvent
technological protection measures that control geographic market segmentation.”

That’s right – government mandated circumvention of DRM
protection measures like region locking and the like.

But wait, there’s more. 
Recommendation six says:

The Committee further recommends
that the Australian Government investigate options to educate Australian
consumers and businesses as to:

the extent to which they may
circumvent geoblocking mechanisms in order to access cheaper legitimate goods;

the tools and techniques which
they may use to do so; and

the way in which their rights
under the Australian Consumer Law may be affected should they choose to do so.

There are even more  recommendations that go a long way towards
strengthening the user’s rights, even up to the point of considering outlawing “geoblocking”
should it come to that.

If you’re sitting there with your mouth open at the extent
of all this then you’re doing so in good company. The idea of a government doing
all of this is quite astounding. Here at home we’ve got is NZ Post and its You
Shop service (giving customers a US postal address so as to get round shipping
restrictions) and Slingshot with its Global Mode allowing “visitors” to access
US content as if they were in the US. Ahem.

Sadly, the New Zealand response on all of these points is
underwhelming. We’ve decided to push back any decision on parallel importing or
the review of copyright laws until after the Trans-Pacific Partnership secret
deal is concluded.

Given the US is pushing a hard line on copyright,
intellectual property and parallel imports, I doubt that means good things for New
Zealand users. Unlike our Australian counterparts, we have no such support at
government level beyond Minister Craig Foss telling TUANZ that he has written
to the Australian government asking if New Zealand consumers can be tacked on
to the side of the Aussie inquiry. I’ll find out if they ever replied and what
outcome there has been, if any.

The Australians aren’t too worried about offending the US
with their actions. They’ve already secured a free trade agreement and know
that it’s not paid dividends to Australia’s economy at all. Far from it – the prevailing
consensus appears to be that Australia has given up far more than the US has
and gained very little from it.

Well done, Australia. Wellington – have a look at what could
be gained for New Zealand users and remember: we get to vote. The Americans don’t.

 

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Electronic McCarthyism

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The government’s committee looking after the GCSB bill has
reported back and made very few changes in light of the overwhelming opposition
to the law change.

Currently opposed to the bill are the Privacy Commissioner,
the Human Rights Commission, InternetNZ, the Law Society, dozens of individual
submitters, the Labour party, the Green party, possibly NZ First and of course
TUANZ.

In favour of the bill is the government and, presumably, its
security allies the US, Australia, the UK and Canada.

Increasingly, New Zealand trades with China, yet it is China
that is specifically listed as a potential threat from what we can read of the
advice to government over this bill and its sister, the Telecommunications
(Interception and Security) Bill which is still proceeding unhindered through
the political process, albeit “under urgency”.

We have a number of issues with the two bills, not least of
which is the cost it will impose on the industry and which will, inevitably, be
passed on to customers.

Under the bills, not only will the telcos be required to
store information they normally wouldn’t bother with, but they’ll also be
required to consult with the GCSB over changes to the network up to and
including which vendors they wish to use.

Assume for a moment that Chinese company Huawei is making
huge inroads into network deployments around the world and that US companies
are upset by this. Assume that Huawei is providing a better product at a
cheaper price and is currently engaged by all our major telcos in one form or
another. Assume that the GCSB still thinks China is the enemy and that Huawei
is a puppet of the Chinese political system.

What will that mean for our future network deployments?

Will Telecom, Vodafone, 2Degrees, Orcon and Slingshot and
all the rest be forced to use non-Chinese technology?  Will they be required to only use “friendly”
technology providers, even if the cost is 20% more and the deployment that much
slower?

Will the GCSB balk at a request from a telco to move to technology
that passes email and TXTs through the network rather than decrypting and
storing them for future retrieval?

Will the GCSB ban Apple or Google or any other provider from
selling certain “uncrackable” products in New Zealand or ban New Zealand companies
from developing similar products for sale overseas?

In decades to come, will the GCSB be able to trawl through a
political leader’s entire online history looking for signs of being a teenager
in order to embarrass or block that person from office?

If all that seems unlikely to you then you’ll have no
problem with the bills as they stand. But even then there’s a problem.

The US Electronic Communications Privacy Act (ECPA)
specifically excludes US-based companies from providing the kind of support the
GCSB and TICS bills demand. Under this law it is illegal for US-based companies
to provide foreign intelligence services with access to such customer data.

So even if these bills are introduced, Google and Apple,
Microsoft and all the rest will be unable to comply without facing legal action
in the US, presumably from the US government itself.

We’ve not been shown any pressing need to change our laws,
and most New Zealanders it seems are unhappy about the level of intrusion into
their lives these bills represent.

Just as difficult is the position it puts New Zealand in
with regard to both our trading partner, China, and our security partner, the
United States.

We don’t need to rush into a decision. There is no “clear
and present danger” that requires New Zealand to enact these laws without first
considering the obvious ramifications both at home and abroad. We need to get
this kind of thing right, because the consequences are grave indeed.