If the Abbott government was paralysed by something as simple as the effects test...

By the end, Abbott couldn't govern.

Obliged to respond to a report it had commissioned, his cabinet froze.

Pressuring it from one side were small businesses and the Australian Competition and Consumer Commission, the body charged with protecting consumers and advancing competition. They backed the finding of the Harper competition review, that it had become next to impossible to successfully prosecute big businesses for monstering small ones.

Pressuring it from the other side were Australia's biggest businesses, among them the big banks and Woolworths and Wesfarmers (which owns Coles). Backing them were the Business Council, some big-business-friendly unions, and the Australian Labor Party.

Abbott's initial instincts were oppose the Labor Party, the unions and big business. Almost by definition, anything they agreed on had to hurt someone. His minister for Small Business Bruce Billson strongly backed the Harper review, as did the National Party.

Harper had found that Section 46 of the Competition and Consumer Act lacked force. In Billson's words, it was "a dud" – "like a hunting dog that won't leave the porch".

The section prohibits a corporation with substantial market power from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor.

Which sounds fine, until you consider the loopholes, as lawyers do.

One is that the corporation has to "take advantage of that power" for the purpose of eliminating or substantially damaging a competitor.

It would be perfectly legal for a big firm with market power to sell its products for next to nothing and run up huge losses in order to force a competitor out of business, so long as it did not "take advantage of its market power" to do it.

Alan Fels, a former head of the Competition and Consumer Commission, points out that there have been cases where the Federal Court has found that blatant anti-competitive behaviour by big businesses is lawful because there was no "taking advantage".

"The lawyers and economic consultants representing big business have had a field day, earning a king's ransom in fees, by producing Houdini-like escapes from the law based on reasoning about the meaning of these words."

The other loophole is the words: "for the purpose of"...

Under Australian law, appalling behaviour that destroys competition and competitors is quite OK, so long as it is not for the purpose of destroying competition and competitors.

Short of a confession, the purpose of an action is almost impossible to prove. It involves looking inside someone's mind and asking why they did something rather than looking at what they did.

Only two of the 129 countries with competition laws build them about intent. The rest look at effects.

"No other economy in the world has such a weak provision dealing with dominant businesses able to use their economic muscle – not to win the contest to delight customers, but to take out businesses or to fortify their positions so that new entrants don't get a chance," Billson said this month shortly after Abbott's cabinet rolled him.

Actually, it didn't roll him. It decided to shelve the decision on Section 46 indefinitely.

Harper wanted it reframed to prohibit a corporation with substantial market power from engaging in conduct that had the purpose, "effect or likely effect" of substantially lessening competition.

Harper recommended the effects test in March. For the entire six months since – right up until his last day – Abbott was unable to decide what to do, becoming cooler and cooler about the idea the more that big business lobbied. The Business Council is reported to have threatened a public relations campaign that would have said that $2 milk was under threat, or something like that; $2 milk would indeed have been under threat if its effect had been to take out competitors, eventually resulting in higher prices.

So too would the behaviour of Qantas, which in 2001 helped push Ansett over the edge by taking out full-page ads showing the sea of red seats it was preparing to add to routes all over Australia just as Ansett's receivers were negotiating with a buyer that might have saved it. It would have been hard to prove intent, but it would have been easier to prove effect.

Business lobbyists warned of a "lawyers' picnic" if it became easier to convict big businesses for destroying competition (putting to one side the role that lawyers already played). And they warned of a "chilling effect" if the boards had to consider the effect of their actions on competition in the same way that they did in other countries.

Labor's Chris Bowen backed them, insisting that sometimes big businesses needed to trample on small businesses in order to get big enough to take on Asia.

"As you seek to grow scale to compete in Asia in the coming decades, I could think of nothing worse than a group of competition lawyers saying you have to be a little careful," he told an industry function. An effects test was "one of the most dangerous economic ideas considered by a cabinet in living memory".

Labor's pro-big business stance is easier to make sense of when you realise that big businesses are more unionised than small ones. Unions want them to take out non-unionised competitors.

Turnbull's cabinet is going to have to make a decision, and not only about that. There are scores of completed inquiries that have been piling up in Abbott's in-tray, among them the financial system inquiry which reported in December. With Billson out of the cabinet, and with Labor almost guaranteeing not to attack him, he'll find it easier to back the big guys.

In The Age and Sydney Morning Herald

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Productivity Commission: Abbott commissioned reports that vanished

The independent Productivity Commission has lashed the Coalition for so far failing to respond to reports it commissioned up to two years ago.

Productivity Commission chairman Peter Harris will tell a competition summit on Tuesday that two years after launching what it said would be the most comprehensive review in two decades the government has done nothing about competition policy despite “occasionally reported sightings”.

The 550-page Harper review cost $3 million and was delivered to the government in March.

“For too long now, under governments of both political persuasions, major reports seem to be left to languish if they no longer suit the immediate political agenda,” Mr Harris will say.

“An issue here or there may selectively be picked off, but the outcome is minimal change despite the initial promise.”

“Reports like Harper, or closer to home my organisation’s report on Justice in Australia, now twelve months old, deserve a serious response, even if it is to reject, but explained with logic and thoughtfulness.”

“The issues involved in these reports are not second order. They are social or economic first order matters.”

The Murray inquiry into Australia’s financial system was delivered to the Abbott last December 2014. It wasn’t put on the agenda of the Abbott Cabinet until last Monday, at a meeting set down for the night Mr Abbott was deposed. The new treasurer Scott Morrison and the new assistant treasurer Kelly O’Dwyer want to delay responding to the report again while they get up to speed.

Mr Harris will say that at least the Council of Australian Governments noted the Harper Review, but he will say: “it is rare to recover bureaucratically from the fate of being noted by COAG"...

Mr Harris will say there is massive scope for the Turnbull government to benefit from taking up the sort of reforms suggested by the review.

“Take health, on which Australia presently spends about $150 billion per annum,” he will say. “The Productivity Commission has estimated gains of up to 20 per cent in health budgets from applying known clinical best practice across the board. I emphasise these are known reforms, not hypotheticals.”

“We didn’t give an estimate of gains to welfare and fiscal positions of States and Territories, but we could if a government sought such a number, as part of a wider inquiry.”

In The Age and Sydney Morning Herald

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The pharmacy protection racket that keeps prices high

Do you ever yearn for a return to the days before supermarkets when shopping meant a separate trip to the green grocer, the dry goods grocer, the butcher, the baker and the delicatessen?

Me neither. Life has become busy. Two-earner families shop at one-stop shops because we no longer have time for repeated stops.

Except for chemists, where we are forced to.

Hours after last week's Harper Competition Review recommended an end to pharmacy ownership and location rules the Pharmacy Guild defended them by appealing to nostalgia.

"By ensuring that pharmacy ownership is widely spread, the major supermarket chains are prevented from securing the high degree of market dominance they have obtained in other areas such as grocery retailing" it said, apparently under the delusion that we would prefer our groceries to be sold by someone other than the big supermarket chains.

The truth is we've voted for the supermarket chains with our with our feet. We are likely to continue to vote for them should they be able to sell pharmacy-only medicine and dispense prescriptions (using qualified pharmacists) as they can in the United Kingdom. The best guess is its decision to allow supermarkets to sell medicine cut the prices charged by 10 to 30 per cent. Few in the UK would turn back the clock.

The rules governing Australia's pharmacies are so strange we've come to think of them as normal. They apply in no other industry. Whereas any Australian can own a doctor's surgery or an electrical or plumbing business, only qualified pharmacists can own new pharmacies. The restriction isn't to ensure that those qualified pharmacists work in the pharmacies, many of them own many pharmacies or are retired. It's to make sure no-one else can own them, because apparently supermarket goods and pharmacies don't mix. It's illegal for a pharmacy receiving government payments to be located in or accessible from a supermarket, defined in the 56-page handbook as "the type of store in which a person could do their weekly shopping from fresh food (e.g. dairy, meat, bread), pantry items, cleaning products, personal care items and other household staples (e.g. laundry pegs, plastic food wrap)".

Except for those supermarkets operated by pharmacists *within* their pharmacies. Brisbane's SuperPharmacyPlus has set up an IGA within it allowing customers to "grab it and go".

If you can't find a pharmacy near you, there's a good reason. The industry is effectively closed to new entrants. Any pharmacist trying to set up a shop within 1.5 kilometres of an existing one is denied the use of the Pharmaceutical Benefits Scheme. There are exceptions - pharmacies can be closer within shopping centres (so as not to annoy the likes of Westfield) but there needs to a distance of 500 metres between them when measured in a straight line "from the mid point at ground level of the public access door of each of the premises". In country towns pharmacies have to be 10 kilometres apart.

The Guild says the rules ensure pharmacies are evenly distributed. But they don't always.

The Canberra suburb of Hackett remains a black hole after a pharmacist went to the expense of fitting out a shop only to be told she couldn't use the Pharmaceutical Benefits Scheme because she was 1.345 kilometres rather than 1.5 kilometres away from her nearest competitor. The Harper Review was told a much needed medical centre at Ingham in North Queensland was all set to go until an existing pharmacist moved to a boatyard within 1.5 kilometres of it preventing it from incorporating the pharmacy that was needed to make it a commercial proposition.

The more important effect of the location rules to protect pharmacies from price competition and from competition for the government payments that make up over half of pharmacies' income. Harper says if there are areas of Australia left unserved after the location rules go (as there are now in Indigenous areas) the government should consider allowing doctors to dispense medicines themselves.

It's far from true that Australian pharmacists support the restrictions. The Pharmacy Guild of Australia represents only the the 4000 who own pharmacies. Another 20,000 are locked out of ownership and forced to work for those who got in early. These "employee pharmacists" are represented by Professional Pharmacists Australia which supports a review of the location rules and has incidentally asked the Audit Office to conduct a complete audit of all public money handed to the Guild.

The Audit Office had a brush with the Guild just last month. In its report on the Guild's funding agreement with the government it didn't know what to make of an organisation it described as variously: an industry association, a publicly funded administrator at times acting as an agent for the department of health, a recipient of government grants, an owner of businesses selling products to pharmacies, and an advisor to the health department through its membership of boards.

The Community Pharmacy Agreement agreement pays the pharmacies to do the things many of us might have thought they did routinely, such as dispensing drugs and keeping electronic records. Its annual cost has climbed from $546 million in 1991-92 to $3.087 billion in 2013-14. Not that you've seen this in the budget papers, where it is lumped in with the cost of the Pharmaceutical Benefits Scheme. The Audit Office had to work it out itself. Its report found the health department kept no formal records of its negotiations with the Guild ("not consistent with sound practice"), paid it $31.2 million over five years to administer the agreement (some of it without informing the health minister), and was unable to get data from it about how much its members actually paid for the medications they sold.

It would be easy to get the impression pharmacy owners have access to government funds and government protection on a scale undreamed of by other industries now that the car industry is departing. It would be easy the get the impression that the comments about record keeping and financial management reflect badly on the then head of the department of health Jane Halton, who now runs the department of finance. It would be easy to get the impression that something has to give. Harper has given it a push.

In The Age and Sydney Morning Herald

Related Reading

. Want a pill that will make you rich? David Leyonhjelm, Australian Financial Review, September 19 2014

. A prescription for privilege, Terry Barnes, June 16, 2011

. A prescription for pharmacy reform, Terry Barnes, Policy Summer 2011-12

. Harmacy: The Political Economy of Community Pharmacy in Australia, David Gadiel, Centre for Independent Studies, 2008



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ACCI raises (two-thirds of) a glass to small business

The Australian Chamber of Commerce and Industry has recast itself as a champion of small business in the lead up to the election using a National Press Club address to launch a campaign called “The Big 4 You Can’t Ignore for Small Business”.

But the Council of Small Business of Australia says it has left two items off the list.

Wednesday’s address was silent about competition policy, where small businesses believe they are being monstered by the two big retailers, and silent about contract law, where small businesses say they are at the mercy of the shopping centre chains.

“I don’t want to attack the Chamber. It is doing a good job in an area it feels comfortable in,” said Council of Small Business executive director Peter Strong. “But it won’t address the supply chain issue because it also represents Coles and Woolworths. It won’t address tenancy issues because it also shopping centre landlords.”

“Our members face take-it-or-leave-it contracts from those landlords. They are forces to take on multinationals. We would like the same sort of protections in place for them as for consumers"...

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The four concerns raised by the Chamber are red tape, an overly-complex tax system, unwieldy employment rules and inadequate roads, ports and railways.

The Chamber is especially concerned about planned changes to the fair work laws which will make “an unbalanced set of laws even worse”.

“Employers are frustrated, the small business people of Australia feel let down by the barracking and partisanship that has brought this about,” ACCI chief executive Peter Anderson told the press club.

Mr Anderson said he wanted more small business people in parliament and in the top echelon of the public service. His predecessor as chief executive, Peter Hendy is the endorsed Coalition candidate for the seat of Eden Monaro.

In today's Age


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ASX-SGX merger dead

From ASX:

ASX Limited (ASX) advises that Singapore Exchange Limited (SGX) has today been notified by the Foreign Investment Review Board that the Federal Treasurer, the Honourable Wayne Swan is disposed to the view, under the Foreign Acquisitions and Takeovers Act, that the proposed merger of ASX and SGX should be rejected as contrary to the national interest.

The ASX Board maintains an ongoing belief in the need for ASX participation in regional and global exchange consolidation. This, together with the business logic of the combination proposal announced with SGX on 25 October 2010, resulted in the ASX Board unanimously recommending the ASX-SGX merger proposal to ASX shareholders. ln this context ASX will continue to evaluate strategic growth opportunities (including further dialogue with SGX on other forms of combination and co-operation).


From Swan:

It is routine for FIRB to advise the applicant of any national interest concerns before a final decision is made - as this is an important part of the process to allow the parties to respond – but obviously I am still open to further representations or information from the parties before coming to a final decision.

FIRB informed SGX that I had serious concerns about the proposal and that, subject to further consideration, I intended to accept the unanimous FIRB advice that the takeover would not be in the national interest.

It’s important to note I have not made a final decision, and it would not be appropriate for me to make further public comments on an application that is still under consideration.

Read more >>

Ahead of Woolworths & Coles at the Senate Inquiry today...

From 9.30 am Watch Here

Shane Wright, economics editor of the West Australian poses this question:

Does WA need a dairy industry?

Now before you start mailing in dry cow pats in anger, I am not advocating it’s time for the State’s remaining dairy farmers to walk off the land and take up jobs driving trains for Fortescue Metals or BHP Billiton (although financially they may be better off doing just that).

But with a Senate inquiry looking into the milk price war now being waged by the nation’s major retailers the heavy focus has been on the poor plight of dairy farmers with precious little attention given as to whether we should have them in the first place.

This would be the same industry that got a $2 billion assistance package in 2000 to end taxpayer-funded subsidies for drinking milk which was paid for via an 11 cent a litre levy on all milk for the best part of nine years (it was only ended by the Rudd Government).

Dairy farmers in WA quickly become an endangered species post-deregulation, evidence that they were only being kept afloat by the subsidies with only the most efficient and financially viable still alive.

Now those remaining farmers have raised concerns that the Coles $1 a litre pricing policy will drive them out of business leaving the people of Perth only sipping UHT milk.

Much has been made of claims that some parts of the country won’t have fresh drinking milk if the price war continues.

The situation in France, where every monsieur, mademoiselle and madam drinks UHT milk, was highlighted as an example of what is about to hit the milk drinking public of Australia.

By any measure the high percentage of UHT milk use in France is high at about 96 percent of total consumption.

But some witnesses to the milk inquiry (and some of the senators) tried to draw a link between the French experience with the supermarket structure of Australia. Pity that claim doesn’t stand up to any examination...

France is the second largest milk producer in the European Union (and one of the 10 largest in the world). The place is awash with milk.

The use of UHT appears more a cultural issue - little history of milk as a beverage, not a heavy focus on breakfast cereals – than a supermarket power issue. The fact France has high per capita consumption levels of cheese and butter suggest locals like dairy, just not as a drinking product.

Across the Channel in Britain UHT use is less than nine percent. And Britain is the third largest milk producer in the EU.

There’s no suggestion that competition among the supermarket chains in France and Britain has led to this huge discrepancy in UHT usage.

But somehow that argument is supposed to fly in Australia.

I don’t think so.

Often through the inquiry and public commentary on the issue Coles is made as the evil-doer, forcing its competitors into matching its pricing structure.

Consider the submission made by Woolworths.

The company has made much of its concerns that farmers will be driven to the wall.

In reality, it appears Woolworths is frightened that its differential pricing arrangements are the only thing in danger of disappearing.

Woolworths, before the price war, was offering its HomeBrand line of milk at around the $1.14 a litre mark.

But it also has its Woolworths brand which was on the market at about $1.47 a litre.

For that extra 33 cents a litre there is a small amount of extra fat (creaminess) in the milk but also a great wad of extra profit margin for our friends at Woolworths.

Instead of trying to argue to customers that for that extra 33 cents a litre customers who bought Woolworths brand over HomeBrand were getting a better product, the company surrendered to the threat posed by Coles and slashed its prices down to the $1 a litre mark.

Indeed, the company only cut the one litre cartons of Woolworths brand to $1 from $1.47. For two litre containers prices fell to $2.29 from $2.67 and for three litre containers the price is now $3.29 rather than $3.96 previously.

"We have publicly expressed our concern that this rapid price drop is unsustainable for the Australian dairy industry," the company’s government relations manager Nathalie Samia wrote.

But there was no gun being held at the heads of Woolworth officials (or those at other major retailers including at IGA) forcing them to slash prices in line with Coles. If they so believed in the unsustainability of $1 a litre milk then Woolies wouldn’t or shouldn’t be offering it.

It was a choice made by those companies that they had to compete with Coles.

That is largely in part because Woolworths, Aldi, IGA and others know that consumers see very little difference in milk.

Milk is, largely, a bulk commodity just like iron ore and coal (although I wouldn’t put splash of iron ore on my Corn Flakes in the morning).

Some, like the West’s Rob Broadfield, will argue long and loud that cheap milk turns a potential cup of coffee heaven into something approaching a mug of bitumen but most of us don’t have the same refined taste buds as Mr Broadfield.

All we want is some white stuff for the morning cereal, a bit to put in the coffee, and maybe if we’re feeling the heat a milkshake for a mid-arvo pick-me-up.

And we actually want it at the lowest price possible.

Unfortunately for WA dairy farmers, it’s clear milk drinkers are more impressed by low prices than much more expensive branded varieties.

Consumers already have a choice when they walk into a Coles or Woolies or an IGA – and they’re voting for the cheap unbranded stuff.

That means for dairy farmers and their processors the focus has to be on product differentiation, convincing shoppers that their higher priced milk is worth purchasing.

On that front they have failed so far.

But it’s much easier to criticise big bad Coles than have a look at your own marketing efforts.

Dairy farming has to be one of the toughest farming gigs going around.

It’s constant, it’s hard, the returns are low and you’re effectively selling something that by its very nature is the same as just about anyone else’s.

And the land dairy farmers are using now may be more productively used for other agricultural pursuits.

Perhaps the question is whether West Australians want, and are prepared to pay for, a dairy industry.

This is an argument not as simple as a supermarket chain selling cut-price milk. This is an argument over how an industry goes about selling itself.

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I thought the price signalling law was directed at banks, until I read it

It wasn't as advertised

Legislation introduced into parliament Thursday to crack down on price signalling by banks has a much wider application and could soon be used to regulate firms such as petrol retailers and supermarkets, leading competition lawyer says.

Treasurer Wayne Swan told parliament the price signalling amendments to the Competition and
Consumer Act would mean the "big end of town" could no longer "dud Australian families" on interest rates.

But the bill itself is broader, applying to whatever classes of goods and services are "prescribed by the regulations".

"Once it becomes law it could be made to apply to other sectors of the economy without proper debate," said Allen & Overy competition partner Dave Poddar.

"In my view the draft regulations that will specify the industry sectors should be released at the same time as the bill so business and the parliament can properly consider them"...

A cabinet briefing sent to Mr Swan in October by Treasury released under the Freedom of Information laws warns that a series of court decisions had made it increasingly difficult for the Australian Competition and Consumer Commission Commission to prove collusion.

It says consumer laws should be changed to give the commission sweeping powers to impose so-called per se bans on the private exchange of pricing information between competitors, eliminating the need to prove an explicit intention to collude.

It is understood that when the regulations are made public they will only prescribe banks. The Treasurer will extend them to other sectors after detailed review and consideration.

Mr Swan told parliament the new law would convictions where banks gave each other a "nod and a wink" about plans to raise interest rates even where it wasn’t written down and signed in blood.

It includes exemptions allowing for disclosure to the stock exchange and where banks need to exchange information because they are part of a lending syndicate.

Published in today's SMH and Age


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Swan to swing at banks. Or so he would have us believe

16 per cent return on equity and too big to fail. Bloody hell!

Treasurer Wayne Swan has raised expectations of an assault on the power of the big four banks in next month's banking statement saying he is "determined to see a new pillar in the system" to take on Westpac, National Australia, the Commonwealth and ANZ.

The so-called fifth pillar would be built around credit unions, building societies and wealth management firms such as AMP and AXA which are currently in takeover negotiations.

Asked on the Nine network whether he would approve the AMP bid for Axa Asia Pacific in order to help create the fifth pillar he said he would not speculate but had made it abundantly clear he would "welcome additional investment in the banking system to provide more competition for the big four".

Each incurred the wrath of the Treasurer by lifting its mortgage rate by between 37 and 45 points in the wake of the Reserve Bank's Melbourne Cup day move of 25 points.

"There are better deals down the street," Mr Swan said yesterday. "If you go to a credit union you may be able to get up to 100 points better in terms of your mortgage. The big banks behave in an arrogant way because they feel confident their customers won't walk."

The Treasurer spoke as the Whitlam Institute released a study finding the big banks "overcharge their home loan customers"... avoid pressure to reduce costs, and funnel the excessive profits to their senior executives.

Prepared by former Labor staffer Nicholas Gruen of Lateral Economics the study claims home loans have become "commoditised" and simple to provide.

"Normally when a product becomes commoditised, its price falls to eliminate the margin, but the mortgage margin is stuck where it was in 2004, at around 2 percentage points," he the Herald.

Dr Gruen wants the government to lend its AAA credit rating to mortgages with a safe loan to valuation ratio, enabling non-bank lenders to get access to funds for mortgages on the same terms as the big four.

In Canada where there is such a system the insurance costs as little as 0.5 per cent of the loan.

Treasurer Swan confirmed his package would make it easier to switch lenders saying it would give "customers the capacity to walk down the street and get a better deal".

In a submission to the Senate banking inquiry Melbourne University finance professor Kevin Davis has proposed allowing borrowers to switch without the discharge of the mortgage and without a new property valuation. Lenders would no longer have "absolute discretion" to change the interest rate" but would have to vary it by "reference to objective information".

Published in today's SMH


Commoditising Banking Nov 2010


Commodising Banking Executive Summary


Kevin Lewis Senate Banking Submission


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Time to ditch the ABC?

Follow the debate here.

And now, here.

Below the fold ABC boss Mark Scott (unintentionally) responds in a typically excellent address delivered in Melbourne Thursday night:

The Quest for Truth: Quality Journalism and a 21st Century ABC

The 2010 election campaign was the journalistic gift that just keeps on giving.

I had intended to draft these remarks once the result was known. But remembering that I was speaking at the Melbourne Writers' Festival rather than Improv Night at the Comedy Festival, I couldn't wait for the white smoke.

This election has changed how we think of „politics as usual‟ in this country. It has also triggered significant debate about the practice of political reporting.

And I can‟t let the opportunity of this speech go by without wading into these murky waters.

So let me make some muddied observations about the campaign and how it was handled by the fourth estate and then make some tentative suggestions about implications for the media and the nature of news coverage.

Then - following the proud traditions of these events - it will be time for questions, where you can tear into me. The toughest Senate Estimates sessions are merely training for encounters like this.

I want to break with the curmudgeons who talked about a boring election campaign, saved only by a thrilling election night and the epic drama that followed.

The long-standing, predictable narrative train of the election, pre-destined when the Government soared twenty points ahead in the polls, was derailed in the dead of a Canberra winter‟s night.

Now, for the first time since 1993, we had two new leaders in the top jobs fighting their first election. The most inexperienced Prime Minister to ever face an election. A dangerously honest Opposition Leader with – to use Annabel Crabb‟s memorable phrase – a truth parrot squawking on his shoulder. Polls in flux, strategies in disarray. An electorate polarised, idiosyncratic, unpredictable.

And important matters in play: the economy, the environment, national infrastructure. A nation at war.

Rare ingredients for journalists and journalism. A remarkable opportunity to use old tools and new tools to bring the story to the Australian people.

A few days into the campaign, the ABC launched its long-awaited 24-hour news channel. While Sky had been on air for 15 years and has increasingly focused on live events and reporting from Canberra, with ABC News 24 we created a news channel that was an option for all Australian homes, not just the 30% with pay-TV.

The mixed model of public and commercial news services has served Australia well for over sixty years – and will serve us well in the age of 24 hour news as well. Competition, despite the protestations of the monopolists, has been to the advantage of both audiences and practitioners. Sky, for example, greeted our arrival by winning more money from its owners and putting that to good use. They had a strong campaign - as did ABC News 24.

Modern campaigns are a political version of The Truman Show. Keep the channel on and you know what I mean.

He's on a bike. She's on a train. He's running with kids. She's eating a cake. He‟s making a speech.

She's holding a doorstop. He‟s looking cranky. She‟s looking tired. Where is he now? Why‟s she wearing that hat? She drinks Guinness. He drinks shandies!

If he had done it in week 2 rather than on the final day, Abbott‟s liking for a shandy made with light beer could have killed him in those Western Sydney marginals.

Campaigns always had these features. But now everyone can see it. Outsiders became insiders. And now we have the truncated news cycle: which advances stories and then responses and then generates further iterations throughout the day, rather than simply setting up the evening news and tomorrow‟s papers.

It exacerbates the phenomenon. The politicians always seem on. And we see now what only the journos once saw: the politicians are scripted – they say the same things over and over again. Less variation in response means fewer choices for journalists to report on something you don‟t want.

The old maxims taught to politicians apply more than ever:

“Just when you are sick of saying it, people are beginning to hear it for the first time”.

“Don‟t answer the question they ask, answer the question you wanted them to ask."

"Don't change the argument, change the audience."
And the journalists are shunted and controlled and frustrated and increasingly sick and tired.

It might be more controlled, there might be more events, things might be more closely scripted – but this is modern campaigning. It is just that we can all see it now, live, around the clock.

Every press conference, every speech, every photo op, and in the background, every nodding local candidate.

It may be refined, but it is not new. There have long been books written about this stuff: pioneered by Teddy White with The Making of the President 1960. But now we can all see how political campaigning is done – and like seeing the law or sausages being made - it‟s not always an edifying experience.

But it is important. The scrutiny, the performance under pressure, the way questions are answered and avoided, unexpected events are dealt with, managing the tiredness, the frustration, the disappointments – this is part of the political crucible our leaders must endure. Attention must be paid to this. There needs to be a bus, journalists need to be on it. Asking questions, waiting for the unexpected, watching it all and reporting back.

This was, after all, one of the great achievements of Tony Abbott in the campaign. The most mercurial of performers, disastrous in 2007, prone to erratic bursts, turning in such a disciplined performance.

After a shaky start, he reminded me of a marathon runner, clocking 5 minute miles, mile after mile. That consistency allowed people the opportunity to rethink him and what he might offer. Just as the lack of consistency from the Prime Minister, the articulated shift from the programmed to the real, caused people to rethink their view of her also.

Another great political classic of the past was The Boys on the Bus by Timothy Crouse – about the journalists covering the 1972 Presidential campaign.

Well now we know all about the 2010 bus. Journalists tweeting their frustrations, snap commentaries, collective fury. Live crosses back and forth – to the news channels, to local radio. The journalists add to the colour of the campaign.

Off the bus, senior journalists sit back, read, watch, review, dig and come to judgement. The field of reference is so limited on the bus it is hard to see the broader field - so many of the big guns simply don‟t climb on board.

What was significant here was how senior journalists would break stories – good old fashioned scoops – that would set another agenda for reporters to follow up on the bus – a different one from the one prepared by the parties for their daily policy announcement.

Chris Uhlmann on the young political staffer sitting in on top level defence meetings. Lenore Taylor and her scoop on Treasury‟s costings of the Coalition‟s proposals. Laurie Oakes on the Prime Minister‟s reluctance to embrace parental leave. Phillip Adams, at ten o‟clock at night on Radio National, getting the former Prime Minister to break his silence. Stories that dominated every press conference for days after – reporters on the road following up the lead that every editor wanted to advance.

And while there has been some discussion over whether there was an over fixation on these issues, I would simply argue that at any time, in any campaign, they are great scoops – delivered the way any great journalist delivers a scoop: authoritatively, mysteriously. A reflection of experience, credibility and contacts cultivated for just this moment.

I will come back to policy discussion shortly, but I want to add that this campaign did feature great, substantive journalism, and genuine investigative energy. Full hours of radio devoted on RN‟s Background Briefing, presciently, to the crisis in rural Australia and the national broadband network. A stunning undercover investigative piece on Four Corners about people-smuggling and then again, a compelling case study on mental health issues based in a regional city.

The detailed stuff was there, where we always had found it in the past – particularly in long-form news and current affairs. And it is not as though policies were not debated – there were numerous occasions – at the Press Club and elsewhere – where Ministers and their shadows, senior campaign spokespeople or candidates had the opportunity to engage around policy differences.

And as has been the case for nearly 15 years now, any candidate who seeks the top office had to endure cross-examination by Kerry O‟Brien. This time, three interviews each – moments when the whole campaign seemed to come to a halt while the questions were placed and answered. And then afterwards – an assessment of the impact.

This campaign offered a depth and richness through online coverage that was never before available.

Certainly at the ABC. We‟ve never had the chance to offer as many different perspectives, as many different policy and political insights, as we were able to through our website, The Drum.

One of the joys of online is that you have space. Space to run details on every candidate in every seat on Antony Green‟s election pages. Pendulums and calculators and demographic analysis. Detailed policy briefings. Press conferences available in full. Debates. Archival material. All there for anyone who is interested, anyone who wants it.

I remember being delighted when Annabel Crabb wrote a story for The Drum trying to explain what it is like following these candidates. A storm erupted about the behaviour of the journalistic pack, now visible for all to see. She wrote a piece, and in it, noted her surprised realisation that she has already passed the 2,500 word mark. Virtually an impossibility in print for a weekday turnaround piece.

More words than half a 30 minute news bulletin. But the space is there online to tell the story properly.

I do think one of the achievements of this campaign was the deconstruction of the political process for all to see. Look at Gruen Nation. Remarkable audiences, being educated about the dark arts of political communication, the construction of crafted messages, the execution of the smear, the dog whistle, the earworm jingle. We laughed and we learned and – by the last week of the campaign when the advertising barrage was remorseless – we were all wiser.

But interestingly, I think all these features, culminating in the most comprehensive and exhaustive campaign coverage ever – do not capture its single most salient aspect – the voices of the public being heard more than ever before.

The first example is through blogs and the Twitter traffic. Half way through the campaign, the ABC Executive met on a Monday morning and discussed the weekend blog by the Canberra public servant, writing under the tag Grog‟s Gamut. It was a lacerating critique of the journalists following the candidates, their obsession with transient matters, the political scandal of the day. He met a chorus of praise and support, triggering a barrage of criticism of campaign coverage.

I think there is quite a bit of beard-stroking on this issue. There will be big political stories and they often have important implications – like how united or divided a party is – or how seriously they treat matters of national security. Leaders must be questioned on these issues.

And often it is hard to ask nuanced questions about a policy that is only delivered in press release form to your hands at the beginning of the press conference, if at all. In fact, often the leaders only want you to ask questions on their policy of the day, on their terms, without allowing you to dig – avoiding the news stories and deflecting other issues for another occasion.

You need both of course. The journalists on the bus firing questions, the team back doing the digging, taking paths away from the mainstream. So that we don't just get more and more about less and less.

One of the questions of this campaign is whether we took advantage of the increased capacity to create and deliver content using digital media to provide the breadth and depth of coverage that was possible. And if we did - whether we really helped interested voters to find it.

There has been some criticism of journalists treating the election as a horse race and treating every poll, every press conference, every wrinkle on a story as a chance to slash odds, fine-tune predictions and call the result.

It reminds me of when, as a newspaper excutive, I met The Sydney Morning Herald's famed rugby analyst, Sprio Zavos, outside the final of the 2003 World Cup. "Who is going to win?," I asked him. "I don't know Mark," he replied. "That's why they're playing the game."

We don't want only horse race journalism. But the result matters. As does the path that was taken to get there. Polls may only be a snapshot in time - a theoretical moment on the way to a real outcome. But polls and campaign ups and downs do have an impact: tactics change, new policies emerge and old ones are dead, buried, cremated because of polls. Polls cost a Prime Minister his job this year.

And the race isn't only held on election day - it is held day in, day out, through the campaign and in the lead up to voting and counting. Like the Tour De France, the final sprint into Paris is not where the race is usually won. It is a multi-week epic, slogging through the hills in the middle stages, going day after day.

And the person who emerges from those mountains, wearing the yellow jersey towards the end, usually takes the prize.
The parallel might break down if you tried to compare the views you have across the French countryside to those within the Rooty Hill RSL, but you get my point.

At the ABC, we identified that the dynamic political news was crowding out proper reporting of policy initiatives in some news bulletins – and that we needed to allocate more time to reporting some of these issues properly. We adjusted our strategy as we listened to critics, our audiences - and critiqued our own coverage. Politics and policy are not binary choices. We need to do both.

The contributions of bloggers – the constant feedback and commentary of thousands though the #ausvotes stream on Twitter – were watched and considered by every mainstream media editor. And we could see – the impact made by some bloggers was every bit as great as that made by other mainstream professional journalists.

And through Twitter, the „people formerly known as the audience‟ - to use Jay Rosen‟s phrase - could become real participants. Firing in questions, challenging journalists, finding facts and delivering them to those on the road. Part of the conversation, not simply observers. As Grog's Gamut wrote last week for The Drum:

"Twitter and the mass of amateur blogs contain many smart people who for some bizarre reason enjoy writing about policy....the media should not scorn these people, they should feed off them for ideas and research (properly acknowledged of course)."

The blogosphere is no place for the faint-hearted. You know that by reading comments on stories – and they are the ones that got through the moderation process. There is no filter on Twitter. And I expect there will now always be savagery in the criticism of much mainstream media performance, just as most weeks there is robust criticism of the professionals who run out onto sporting fields or those who get elected to office.

What is important, though, is to find the signal through the noise. There was some significance in the signal that could be heard from those writing and commentating on campaign coverage over the five weeks.

And of course, we had clearly demonstrated in the campaign that the people formerly known as the audience knew how to ask pretty good questions. Questions that were funny, full of emotion, questions fuelled by rage or fear, uncertainty or contempt.

The audiences flocked to Q&A to see the leaders questioned by real people. The crowds at Rooty Hill and the Broncos showed to many in the media cocoon precisely the issues that drove people to make the decisions they made in the polling booth.

And by getting out to find the voter‟s voice, through a range of people, we got a sense of what was really going on. I thought the work of the AM team, criss-crossing the country, talking to people in their homes and at work – helped us all to understand the country a little better.

Much of AM's time was spent in regional areas. During the campaign, the program addressed issues the whole country was soon to hear much more of, once the empowered Independent Members of Parliament strode in from the bush and grabbed the nation‟s attention.

It was quite a campaign.

Some of the criticism I understand. We would all have liked more detailed policy engagement by the candidates. Have them a little less scripted, offering more unguarded moments of honest engagement around complex, substantive issues. Some issues were under reported. Some important questions were not asked, some were not answered.

I am not going to defend every interview or press conference. But having come from print into broadcasting can I just say there is nothing tougher than a live interview: no second takes, no re-writes, no sub-editors, no time for reflection or collaborative discussion – just the moment and what you can make of it, given what is being presented to you from across the table.

You can only deal with what you have – and there were two main candidates marching to a plan, trying not to be deflected from it. We still need to do better in reporting the campaign and the politics, while not simply dancing to a tune set by party strategists and the pressing story of the moment.

But I do think it was a great campaign, with an amazing result.

What does all this mean for journalism and our quest for truth? And are there implications for the ABC?

A challenge for media organisations is to think about what is compelling in this era of global content, of endless archives and long tails, of generic content and time shifting and the breakdown of appointment viewing.

In this era - live matters. Events matter. Sport. The final of Masterchef. News.

In this election, audiences were huge. On ABC News 24 they were immediately much larger than we expected. Enormous numbers for Gruen and Chaser, for 7pm News and in 7.30 Reportland. Over 35,000 tweets in an hour for Q&A. It was a compelling media product - and that is good news for journalism. When the story matters, the news counts.

Now there are challenges with that - how do you cut through? How do you stand out? Enter Mark Latham.

I look at Nine with amazement. A reported $10,000 for Latham, a million dollars publicity, reasonable ratings – and - Laurie Oakes enhances his reputation by attacking it all as a farce.

That's showbiz.

What isn't so good is how everyone else gave the stunt so much oxygen. The Taylor, Oakes and Uhlmann leaks were real news, Latham was the ultimate pseudo-event and the way every news outlet gave it oxygen was a low point.
There is also evidence that money is not all that matters. The election night ratings were interesting.

The expertise of the ABC, with our investment in research and experience over time attracted a much larger audience than the vast extravaganzas on the commercial networks. The audience can tell the difference between news and showbiz - and they want each in due season.

I read the speeches of Kim Williams and John Hartigan gave at the PANPA newspaper industry conference last week with interest. Both spoke with great enthusiasm about the opportunities of new technology for journalism – and there is much they say with which I am in heated agreement.

But – checking my Kevlar vest – I would like to make one observation about what a current trend might mean for future campaigning and journalism.

I am acutely aware of the pressures facing commercial media organisations in their pursuit of a viable business model. And I have always maintained some media companies can and will be able to devise strategies to deliver targeted, value-added material that audiences are willing to pay for.

A diminution of competition is simply not in the public interest. As I said earlier, Australia‟s mix of commercial and public news services has worked well for over sixty years. We will still need that diversity in the digital age, and we‟ll find a way to ensure it. The way forward is not, however, over the dead bodies of the public broadcasters.

What this election has clearly highlighted and foreshadowed is that some of the proposed charging models bring with them some very big risks.

Tony Abbott‟s words on the live Rooty Hill debate were interesting. He thought it was a great event; he was sorry so few people saw it. The ratings showed fewer than 100,000 people watching – compared to more than 3 million who saw the leaders‟ debate.

Of course, this is because it was behind a pay wall and designed for a pay-TV audience with hours to fill in a schedule. Sky argued at the time it was a television program not a news event, and denied anyone else live access.

Reacting to the criticism, the organisers of the identical format in Brisbane a few days later suddenly decreed it to be a news event, not a television program, and made it available to all.

The lesson was obvious: a pay wall slashes your potential audience.

We can see the impact this has in the field of print.

Laura Tingle is probably the country's finest writer when it comes to sophisticated political analysis. But I would argue that far from dominating the conversation, too often Laura's fine words disappear from view, locked up behind the Fin's expensive and impenetrable pay walls.

It is a classic example of the link economy at work–the value comes from links that enable content to spread through the community. Through its dissemination the work garners comments and power and, in the end, is more highly prized. Unfortunately with Tingle – unless you buy the paper or pay very significant amounts for an online subscription – much of the potential audience misses out.

No links, no tweets, few comments, little blogging response, no emailing the online reference. And as a result, the presence and impact of the work is starkly reduced.

I know the arguments about content needing a price and audiences needing to pay. I don‟t dispute this argument tonight.

I am simply saying that if your model means that your best content is hidden away, rather than spread widely around, you have removed yourself from the conversation - at a time when the media is all about the conversation.

Setting an agenda, driving a response, engaging with your audience leads you to the pay model that showcases your best talent and drives the habit of readership – rather than locking your talent away.

Of course, this is what the New York Times discovered when they made their first attempt at the pay wall. Dowd, Freidman, Krugman – the journalistic all-stars, disappeared. So many people stopped reading them, sharing them, talking about them.

And it was the journalists who demanded the model be changed.

If the miracle happens, and the emergent Government goes full term, it remains to be seen what will happen at the next election. What if The Australian is behind a paywall, or The Sydney Morning Herald or The Age? Will their impact diminish? Does the conversation go on without them?
These things we don‟t know, but they are worth considering and debating.

For the moment though, there is still life in newspapers and an enraged or crusading newspaper editor can still attract a politician‟s attention. But what
if, in future, your journalism is not available to be widely shared and talked about – will that politician still pay attention?

Within half an hour of Tony Abbott saying he wanted another town hall meeting in Brisbane, the ABC had started talking with the parties, booking a hall, collecting an audience. Our real focus was on snaring a final debate, but we were happy to have a town hall meeting as part of it.

In discussion with the campaign directors, it was clear to me that they wanted the reach of free to air television and were happy to use ABC talent to host.

But finally, there was no way either was going to upset a monopoly Murdoch newspaper in the pivotal swing state three days before polling day. The thought of what The Courier-Mail would do to the candidate who didn't show to their sponsored event was chilling to contemplate. The Prime Minister got a taste anyway from The Daily Telegraph on election eve.

It said to me, conclusively, that the system of debates and town hall meetings should not be in the hands of political parties – nor media organisations. The events, the venues, the panels, the hosts, should be set by a totally independent panel and commonly understood, a year before the date of the election.

I agree with John Hartigan’s assessment that newspapers need to evolve to deliver news content 24 hours a day, to audiences in print and on a range of devices. This has been the key to our thinking at the ABC. It has led to a million iPhone and 100,000 iPad ABC apps being downloaded - delivering the best of our websites, the latest news and now live streaming ABC News 24.

And I would tentatively suggest you see some signs of that already in this campaign. I would argue when the race was on, it was a digital event – for all media organisations – broadcasters and publishers.

Breaking news live, instant feedback and response, the power of the visuals – immediately accessible. People were not waiting for tomorrow morning to find out what happened – and nor were they waiting for the evening news.

It places demands on journalists, but it is interesting to note how many of our best are now genuinely cross-platform. Journalists want to be in the midst of the conversation. They are keen to report, appear on radio and television and write and tweet and connect with that audience.

Laurie Oakes‟ tweets, like everything else he does, are masterful. Uhlmann is a wonderful writer. Fran Kelly can talk about her important Malcolm Fraser interview while appearing on The Drum. These cross-platform appearances reinforce brands, cross-promote and build the skills and personal brand of the journalist – all positive things I would argue.

The ABC hosted Jay Rosen for a day while he was recently in Australia. He is always good value on the role of social media and the nature of political
journalism - in some ways quite a contrarian – and full of encouragement about things we could do better.

He had two suggestions for the ABC, which we are exploring and will likely pursue. The first is to provide more background, detail and context for members of our audience who are coming fresh to complex stories: like an ETS, or the NBN, or the operations of a hung parliament. The ABC has a role as a patient explainer of these complexities, to help people catch up with the conversation, understand what is being said and to make a contribution if they wish. It plays nicely to our Charter role to provide an educational service to the community. It makes policy more accessible and can bring important issues into the mainstream.

And Rosen said we should plan more thoroughly and consult more widely around what national issues are at play in an election campaign. Long before the campaign starts, talk with the community, engage with experts, undertake polling, think about national challenges: the immediate and the far-reaching.

And then articulate that agenda – let the political leaders know that we will be doing stories on these things, asking questions, seeking policy responses and political insights to them. And if the politicians will not engage, devote space to these issues anyway, using experts, finding divergent voices, doing real investigations.

It would not be the ABC‟s agenda, it would be an agenda framed by the audiences we engage with – and the voters who fund us – from all around the nation.

Perhaps it would at least be a way of countering tightly scripted politicians, who want policy discussions only on the day and terms they – not the public or the journalists – have set.

And it might help us from reaching the end of a fascinating campaign with such important issues in play and saturation coverage only to find that somehow, a significant number of people were left wanting more. That their questions were left unasked. Issues still avoided. That there was too much noise and not enough light.

But for all that, a remarkable campaign.

And now, a result would be nice.

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Read more >>

The case against Conroy

Gittins and I love what Conroy's done. As Gittins says: "For Telstra to have been given immunity - an eternal licence to rip off Australian phone users - would have been intolerable"

But Ken Davidson argues today that part of Conroy's vision appears to be to force us to pay more by cutting off what we have now.

An extract:

"It is a blackmail attempt by the Government designed to force Telstra (owned by 1.4 million voters) to divest itself of a copper network, which generates cash flow of around $6 billion a year, and make it worthless within eight years. It is doing this in order to replace it with a system that nobody wants or needs at a cost to households and businesses for access to the telecommunications network 30 to 40 per cent higher than now."

The full thing is below.

Be careful what you wish for. Telstra's competitors - such as Optus, AAPT and Primus, who have led the charge for breaking up Telstra into two companies in order to protect their own arbitrage businesses - may have shot themselves in the foot.

Forget about competition, level playing fields, cheaper, faster telephone and internet services. What is unfolding in the policy announced by Communications Minister Stephen Conroy is a $43 billion protection racket designed to keep Telstra's competitors in business.

The competitors are basically marketing and billing organisations. With the assistance of the Australian Competition and Consumer Commission, they are allowed to tap into the telecommunications network at the telephone exchanges at a price that doesn't reflect the cost of building the network, and then resell the capacity at a price that allows them to undercut Telstra in the profitable major city markets. Telstra, of course, is expected to build and maintain a network that covers the whole country.

This cosy arrangement in the name of competition was threatened by Telstra's announcement in 2005 that it would begin upgrading the network by rolling out fibre to the node at the end of the street as part of the evolutionary upgrading of the network - as has occurred over the past 100 years.

The point was that it would bypass the exchanges and put the arbitragers out of business.

So what? The introduction of automatic exchanges and the change from analog to digital network destroyed more than 40,000 Telstra jobs during the '80s and '90s, which was managed by the former public monopoly without major union disruption.

By comparison, the job destruction as a result of technological change bypassing exchanges and putting the arbitragers out of business would be a flea bite by comparison.

Most of the jobs are in call centres, which are being moved offshore to India and the Philippines in any case.

Fibre to the node is a sensible intermediate step to eventual fibre to the home if it is ever needed.

Big institutions such as hospitals, universities, utilities, big corporations, government departments and even schools already have access to direct fibre connections.

Copper wires, properly maintained, can give speeds up to 50 megabits, which is more than adequate for any need a household might conceivably imagine.

In Devonport and Hobart, where the Tasmanian Government has been experimenting with building fibre to the home at Commonwealth expense, shows nobody wants it while the cheaper copper alternative is available.

The mind boggles. What could a sensible government do with $43 billion to invest over eight years? Think global warming. Think of the infrastructure such as electrification of rail lines, urban public transport, base load renewable energy, conservation and recycling water, which will be needed to reduce our carbon footprint in order to ensure that the world will be a fit place to live for our children and grandchildren.

Meanwhile, Telstra could use its internal cash flows to upgrade the network, supplemented by a multibillion- dollar sell-off of more than a thousand large exchanges, most occupying valuable real estate in the major cities.

Now that would be a win-win situation leading to lower real prices.

What Telstra's competitors hoped was that, by splitting Telstra in two, they would keep their privileged access to the copper network. Not so. As the experience in Tasmania makes blindingly obvious, the only way customers can be induced to take up the fibre-to-the-home option is if the copper network is closed down.

Under the plan, the copper network will become progressively redundant as the NBN network is rolled out. Even with the febrile imaginings of the ACCC as to what constitutes competition, it cannot set a wholesale price for access to the new network that is lower for Telstra's competitors than for Telstra retail.

Without scope for arbitrage, the competitive advantage to Telstra's competitors disappears. Even with the arbitrage handicap, Telstra still holds 70 per cent of the fixed-line market and would be able to drive its competitors out of business, based on a level playing field.

It is bad public policy. Even worse, it is politically disastrous.

It is a blackmail attempt by the Government designed to force Telstra (owned by 1.4 million voters) to divest itself of a copper network, which generates cash flow of around $6 billion a year, and make it worthless within eight years. It is doing this in order to replace it with a system that nobody wants or needs at a cost to households and businesses for access to the telecommunications network 30 to 40 per cent higher than now.

The way this policy was arrived at cannot bear the most superficial examination. When the Opposition stops staring at its navel, it will realise this is Rudd Labor's equivalent of WorkChoices with the same capacity to destroy the Government.

Published in today's SMH and Age

Graphic: From here

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Alston, Beazley and the telecommunications union should hang their heads in shame.

Whatever the Coalition says about this week's long-overdue decision to split Telstra, don't expect it to call for an inquiry.

Here's why.

The Coalition's then Communications Minister Richard Alston (now High Commissioner to London) ordered such an inquiry in December 2002.

Academics and interested parties spent all that year's Christmas season preparing submissions and produced 68 of them by the deadline of January 31. Hearings were to begin on February 7.

Then on February 5, Alston got the committee to cancel the inquiry.

He said the prospect of an inquiry had "achieved its objective by flushing out [Labor's spokesman] Tanner into admitting that his structural separation proposal was a foolish and unworkable concept".

As a result there was "no valid reason for progressing this inquiry".

Rarely has a politician misused the parliament's processes so cynically...

John Quiggin spent Christmas working on one of the 68 submissions. It's here.

He wrote at the time:

Like 60-odd other suckers, I put a submission into the House of Representatives committee inquiring into the structural separation of Telstra. I knew it was an Alston stunt, designed to embarrass Labor, but I thought it might provide a useful forum for public debate. Apparently Alston has now realised this and panicked. Even though he had the numbers on the committee, the evidence showed that his policy was incoherent and unsustainable. So he's ordered the troops to put up the barricades.

Here's the email the committee sent him:

Dear Professor Quiggin

The committee has decided NOT to hold the public hearing scheduled for
tomorrow, 7th February, 2003. It has also decided NOT to hold any of the
scheduled public hearings.

I apologise for any inconvenience.

Just about the only public figure who comes out of this well is Keating. He opposed the creation of the Telstra megalith at the time.

Beazley, and his mates in the telecommunications union insisted that somehow a megalith would be good for us.

The Coalition bought the line.

It is a measure of how far we have travelled that these days the merits of genuine competition are not in dispute.

Alston, Beazley and the telecommunications union that foisted Telstra on us should hang their heads in shame.

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The big four banks have all the mortgages

COMPETITION in the home loan market has collapsed, with the big four banks now writing almost every new mortgage as small lenders are squeezed out of contention.

New figures on home lending yesterday reignited fears that the big banks will emerge from the global economic downturn with too much power.

The figures place renewed pressure on the Rudd Government to unwind funding guarantees that have given the big four banks an advantage over their smaller rivals and non-bank lenders...

Pressure is also growing on Treasurer Wayne Swan to expand an $8 billion support package for the mortgage-backed securities market, a key source of funding for small lenders and non-banks.

Further mortgage growth is expected as the Reserve Bank yesterday decided to keep official interest rates at a low 3 per cent. But with the central bank gradually upgrading its outlook for the economy and inflation, economists believe that interest rate increases may begin before the end of the year.

Monthly figures released by the Australian Prudential Regulation Authority show the big four lenders captured nearly 100 per cent of the $7 billion in new mortgages written in July. Before last year's freeze in global funding markets, those banks' share of new mortgages was running at about 60 per cent.

Regulators are coming under greater pressure to oppose future banking mergers, with lenders such as St George Bank and BankWest being acquired by a bigger rival in the past year.

Smaller non-bank lenders, including Wizard and RAMS home loans, have also been snapped up by big banks. Recently, National Australia Bank acquired Challenger Financial's mortgage business.

With small banks forced to pay twice the rate of their bigger rivals to access the Government's AAA credit rating to tap wholesale funding markets, they struggle to compete on mortgage pricing.

Bank of Queensland managing director David Liddy has been among the most outspoken of the smaller lenders. He says the wholesale funding guarantee only serves to disadvantage competitors to the big four banks. Commonwealth Bank and Westpac dominate the nation's mortgage market, respectively writing 40 per cent and 35 per cent of new loans, the APRA figures show. St George Bank, now owned by Westpac, is winning about 13 per cent of new loans, followed by NAB and ANZ.

The APRA figures show the mortgage market is holding up better than expected, helped by the stimulus provided by the first home owners' grant.

After growing by 0.8 per cent in July, the amount of housing credit is increasing at an annualised rate of 9.6 per cent.

The Australian banking system was already highly concentrated before the global financial crisis, thanks to the 1990s recession, which wiped out the second tier.

The four biggest banks are expected to report about $15.4 billion in profits this year, cementing their place among the world's most successful banks.

Read more >>

Let's divest BankWest, and St George

As official figures confirmed that Australia's banks have all but displaced other mortgage providers, a leading competition expert has told the Senate the competition regulator should take court action to force Commonwealth Bank to sell BankWest, and Westpac to sell St George.

Associate Professor Frank Zumbo, from the University of NSW, told the Senate economics committee that it was not too late for the Australian Competition and Consumer Commission to ask the Federal Court to order the sales.

He said the grounds were that each takeover had demonstrably lessened competition.

''In a very short space of time, just 18 months, we have lost two of the big banks' biggest competitors,'' he told the committee.

''The Commonwealth has taken out BankWest after previously taking stakes in Aussie Home Loans and Wizard, and Westpac has taken out St George, after previously taking over RAMS...

''The Commonwealth's share of the mortgage market alone and Westpac's share alone are now roughly equal to the share of the ANZ and NAB combined.

''My deepest concern is that there will be conversations or thought given to the ANZ and NAB merging.

''Yes, there's a four-pillars policy in place prohibiting further mergers, but it is only a policy.''

Professor Zumbo said the ACCC had a limited window of opportunity under section 81 of the Trade Practices Act to seek divestitures on the ground that it was a mistake to let the mergers through.

''I am not suggesting a fire sale. It could be orderly,'' he said. ''For example, BankWest could be listed as a separate venture and the CBA could pare back its shareholding over a period of time. I make it clear that such a divestiture would be premised on a finding by a court that there had been a substantial lessening of competition.

''I believe that if there was a finding that the merger had not substantially lessened competition, it would provide further evidence that the substantial lessening of competition test is too hard a test.

''Given the impact that the merger has had on the power of the CBA, on its pricing power, on its market power; when you take all those things into account, if a court allowed that merger, I would be very nervous from a public policy point of view about such a test.''

ACCC chairman Graeme Samuel was quoted recently as saying he regretted approving Commonwealth Bank's purchase of BankWest, saying Australia's banks now had ''workable competition but less than intense competition''.

ABS figures released yesterday showed the banks continuing to account for 92 per cent of all new mortgages, the highest proportion for decades.

Published in today's Age

Read more >>

We're scrambling for fixed-rate mortgages

And the ABC is being silly. It reported that the ANZ was putting up the fixed rates it was offering, but that "existing fixed-rate customers are not affected". Why would that be?

The fixed-rate mortgage, as good as dead six months ago, is roaring back to life as homeowners scramble to take advantage of current low interest rates before they disappear.

But many will have missed the boat. Commonwealth Bank joined Westpac Monday in pushing up its fixed rates by as much as 0.60 points.

As recently as December when variable rates were plummeting fixed-rate mortgages were all but unsaleable. Official figures released yesterday show that the proportion of new mortgages fixed for two years or more slid to 1.9 per cent, the lowest in the two decades since fixed rate products came to Australia.

But as the Reserve Bank slowed down its program of rate cuts in the new year the proportion began to rebound, passing 4 per cent in April, 6 per cent in May and 8 per cent in June. In that month 5,452 mortgages were fixed, the most in a year and five times as many as in December.

JP Morgan economist Helen Kevans believes the boom has further to run...

"On top of speculation that the official cash rate already has bottomed, there's widespread concern that the banks themselves will continue to raise their variable rates independent of the Reserve. With most economists, including us, expecting the next move in the official rate to be up, more and more borrowers will lock in their loans."

But loan broker Mortgage Choice believes the rebound may already be running out of steam.

"Lenders are pushing up fixed rates to the point where they are now much higher than variable rates," said corporate affairs manager Kristy Sheppard. "Our average rate for three-year fixed loans has hit 6.71%, which compares to 5.49% for a basic variable loans. The difference in repayments could be $200 per month."

The Commonwealth Bank yesterday matched Westpac in pushing up its rates on fixed loans by between 0.15 and 0.60 percentage points.

The biggest jump was in the cost of its two-year loans which climbed from from 5.94 per cent to 6.54 per cent. Its longer-term 10 year and 15 year fixed mortgages now cost 8.39 per cent and 8.44 per cent.

Australia's banks remain by far the biggest mortgage lenders writing an unprecedented 92 per cent of all new loans, with Westpac and the Commonwealth Bank writing the lion's share.

Associate Professor Frank Zumbo from the University of New South Wales told the Senate's Economics Committee that each now sells roughly as many mortgages as the ANZ and National Australia Banks combined.

"My deepest concern is that there will be conversations or thought given to the ANZ and NAB merging," he told the Committee. "Yes, there's a four-pillars policy in place prohibiting further mergers, but it is only a policy. I'd like to see it enshrined in regulation."

Professor Zumbo also called on the Competition and Consumer Commission to reopen its investiagiton into the Commonwealth Bank's takeover of BankWest, saying it was not too late for the Commission to ask a court to unwind the merger on the grounds that it had substantially lessened competition.


Published in today's SMH and Age

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