Wednesday, February 20, 2013

New England Business News - February 2013 1

A brief round-up this evening of some of the economic and business news affecting New England.

One of the problems of not having our own state is that the statistical data required for proper analysis is either not available or available only at considerable effort. Over on the Conversation, they have been running a series on the future of Tasmania. New England is a damn sight bigger, but we lack visibility as well as statistics.

Back in November 2012, I made brief reference to the financial troubles faced by Nathan Tinkler. Somehow and somewhat to my surprise, he has continued to survive, buying time here and there. Now (here and here), he has settled a few more matters, including the debt to the Australian Tax Office on the Newcastle Knights Rugby League team; a tax debt on the Newcastle Jets is still subject to action.

The Knights have just begun a visit to Tamworth: The Northern Daily Leader reported yesterday: " The start of four days of “footy fever” rolled into Tamworth late yesterday when the blue and red cavalry arrived ahead of their pre-season National Rugby League match between the Newcastle Knights and the Cronulla Sharks". No doubt the Jets are hoping for a similar tax reprieve, as will be the Northern NSW State Football Federation.

Mr Tinkler's financial survival depends heavily upon Whitehaven Coal. His shares in that company were worth  $1.1 billion last April, dropped to $539 million in November (ouch!) and are now worth $630 million. Even with moderate gearing, and Mr Tinkler's gearing was more than moderate, that size decline in market values will create real pain.

Still Mr Tinkler did have some apparent good news during the week, with Federal Environment Minister Tony Bourke giving environmental approval Mr Burke has given the green light to Whitehaven's Maules Creek mine and the nearby Boggabri extension in the Leard Forest (both on the Liverpool Plains), as well as the AGL Gloucester coal seam gas development. I say apparent, because if Mr Bourke is to be believed the conditions imposed are so onerous that none may proceed. Whitehaven's press release on the matter can be found here.

I have written before about the environmental wars that have been raging across New England. The politics of all this are remarkably complex, too complex for a short economic round-up since it plays out at local, state and national levels. For the moment, I just note that the continuing disputes mean some suppression of mining investment below the levels that might otherwise have occurred.

On another matter, in a Financial Review story, Fonterra Board member Ralph Norris has bluntly told dairy farmers concerned about the impact on their viability of the supermarket milk wars to get over it. I can't give you the link because its behind the pay wall.

New Zealand based Fonterra is the world's largest exporter of dairy products. You have too much tied up in domestic white milk sales, dairy farmers were told. In response, Australian Diary Farmer's president Noel Campbell commented that dairy farmers in Queensland, Western Australia and Northern NSW have higher costs of production which makes them less competitive exporters. They also lack processing infrastructure to convert drinking milk into milk powders. He might have added, too, they they have been less active in moving into the higher value end of the market.

The still independent Norco cooperative dominates the Northern New England industry from its headquarters in Lismore. In the South, the Huinter Valley's traditional Oak brand is now owned by Pamalat.  In writing, I have spotted a gap in my historical knowledge because I don't know the story of Dairy Farmer's acquisition of Oak and the subsequent on-sale.

In another economics story with political overtones, the Armidale Express reports that Armidale's largest industrial estate cannot access the new National Broadband Network without paying hefty connection fees. Armidale may be a test roll out site, but the estate falls outside the connection rules laid down by the Federal Government. New England Federal MP was not impressed. I quote:      

NBN advocate and Member for New England Tony Windsor said he had spoken to Communications Minister Stephen Conroy and NBN Co about the issue.

“I reiterated to the minister that most industrial estates in regional communities would be found on the outskirts of town and that they should be recognised as economic drivers for the community, thereby supporting the case to include them in the fibre  out footprint,” he said.

The problem in this case appears to be that the those involved will actually be disadvantaged by the changes, expected to rely on inadequate wireless connections in place of their existing connections. If my interpretation is correct, that would appear to be very silly.

Finally, Irish billionaire Dennis O'Brien's coup against the exiting Board and management of APN News & Media has been successful. I wonder what that means for APN's papers.

As I said. A brief report. 


Before leaving this post behind, I wanted to make a brief response to some comments from Scott. In doing so, my intent is to spell out questions in my own mind, to clarify my own thinking.

The genesis of the discussion lay in my brief comment above on the NBN roll-out. This drew from this story in the Armidale Express. The crux of the story is that businesses in the Acacia Park industrial estate have been told that they cannot have NBN connection unless they pay a $225,000 connection fee. Acacia Park businesses claim to contribute 12% of the local economy. Two of the twenty or so businesses are locally headquartered if small international operations.

Now this story pulled me up. I had thought that one key argument for the NBN lay in the way it opened new economic development opportunities for county businesses. Now I find that those businesses have to pay for connection; the Federally mandated roll-out guidelines centre on residential customers. Let me be blunt here. In local terms, the primary effect of improved communications has been the delivery of an increased proportion of local markets to external suppliers. One part of this has been the closure of local service facilities. If country areas are to benefit in a longer term sense, that benefit will come if and only if local businesses can use the communications technology to grow their own activities. That is why the story surprised me, for it said that another cost impediment had been created for country businesses.

I was surprised for another reason too. I would have thought in business terms, it made sense to connect potential higher traffic areas to the NBN because that improved base load operations.

The Acacia park businesses complained about another issue too, the way they might be forced to wireless technology. Here Scott wrote:

I don't believe wireless NBN connections will be inadequate. While maybe not as good as the fiber NBN, it will still be streets ahead of anything available now. The decisions as to what areas get fiber access is based on common sense economic calculations to deliver value for money both in the construction and the ongoing service.

Now this is what worried me as well. Leaving aside the economic rationality of current NBN guidelines, if the the practical effect is to force businesses onto a less efficient delivery system, those businesses will suffer.  There are two very different issues here: one is cost, the second reliability. An internet based business really relies on reliability.

Let me illustrate by example. Just at the moment, I'm working off site. Our business systems are based on a cloud environment. Over the last week, problems with service delivery have been acute. On one day, more than seventy per cent of staff lost the ability to work productively. Our IT people don't actually know what the problem is yet. They have been working with suppliers to find a longer term solution while working on a shorter term fix.

Now think of the Acacia Park businesses. To grow international operations, even to service local customers, they need reliability. If they move to a cloud environment, if they base their phone systems on the internet, if they want to offer national or global 24/7 service support, they must have a reliable system that has the delivery capacities they need. They also have to have a scalable service, one that can manage data spikes and high traffic volumes and that can grow with them.

Can wireless manage this? My impression is not, although I stand to be corrected. My own connection at the moment is ADSL plus wireless. Down times are frequent.

Now some would say that if country businesses want fibre they should pay for it. My problem is that this defeats a central purpose of the exercise.      

In my discussion, there are two very different issues. One is technical, factual: what are the performance capacities of different systems? The second is economic: what do those capacities and associated costs mean in terms of economic and business development? I don't know. Maybe you can help?

Postscript 2

IT News had a very interesting article, NBN Co fudges numbers to expand rollout, dealing with problems in the NBN roll-out, including what appears to be a case of robbing Peter to pay Paul.


Scott Hastings said...

I don't believe wireless NBN connections will be inadequate. While maybe not as good as the fiber NBN, it will still be streets ahead of anything available now. The decisions as to what areas get fiber access is based on common sense economic calculations to deliver value for money both in the construction and the ongoing service.

Jim Belshaw said...

I'm not sure, Scott. although I take your points. There are some things about the story that I don't understand.

I don't understand why the industrial parks aren't included in the roll-out. It would appear to greatly reduce the benefits. It also gives rise to the odd situation that a house perhaps 800 meters from the park gets a fibre connection, whereas a business gets just wireless.

I just don't know all the facts. One business cited has three present internet connection, presumably ADSL, onto the site for which it is paying $1,800 per month. I don't know what goes into that price. But it still seems odd.

If you want to maximise the economic benefits of NBN in the way claimed, then the key economic activities in the town should presumably be a priority connection.

Scott Hastings said...

What we are talking about is "fiber to the node". What is a node? It's the place where the town connects to the existing wires that link its phones to the rest of the world. Where is the node? It's at the telephone exchange, which for historical reasons is usually at the back of the post office building. The further from the node you take the new fiber line, the more it costs the taxpayer. In most country towns the bulk of the population lives within a few kilometres of the node.

However note the word usually above. Sometimes it's somewhere else, generally the train station or next to the main highway.

Jim Belshaw said...

Mmm, Scott. I was talking in an NBN context. There the concept is direct fiber connection. Mr Turnbull's option is fiber to the node. In this context, I don't understand how connection is meant to be made between the node and the consumer. Twisted copper is meant to be phased out. If there is no fiber, that means wireless, and that's the things the businesses are complaining about. Do you think that wireless meets business performance requirements for head office-branch office communication? It may, but wireless is, I would have thought, a little unreliable if on-line constancy is key.

Scott Hastings said...

Kevin Rudd claims at the end of the article that the connection fee incurred will be offset by ongoing savings. If this is true then all they need to stress about is that up front cost. I can understand why, in the current climate, businesses might balk at such a huge one-off immediate expense, though.

I do see now why you say this hasn't been well managed and tend to agree with that. I have never been a fan of Minister Conroy and I'm not about to start now.

I also see why the NBN people are alarmed at the possibility of setting a precedent. I'm sure you can think of towns where the industrial area is quite some distance from town, and the occupancy rates thereof quite low. They could end up via lobbying dragging a cable out 3-5km for a handful of businesses.

In the event, I think for Armidale political pressure will lead to the lowering or waiving of the proposed fee.

Jim Belshaw said...

Hi Scott. You may be interested in the link I have just added to this post. I have always thought that the Minister in question was just too rigid for his own good.

Scott Hastings said...

Another factor causing delays are the ridiculous NIMBY protests against locations of specific wireless towers. I guess putting your country and community ahead of yourself is a dying artform these days.

Jim Belshaw said...

I don't know, Scott. NIMBY has been around for a while! Actually, the divisions create a serious issues in forging a unified New England position and always have.