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. 

Postscript

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.