Bill Bennett

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New Zealand’s government is the largest technology customer and an active participant in the telecommunications sector.

Chorus fibre pricing decision answers one question

Last week the Commerce Commission issued a draft decision on the value of Chorus’s regulated asset base (RAB). It set the value at a precise $5.427 billion.

The number is important as it sets the stage for the fibre company’s future revenue.

Or in the Commerce Commission’s language:

“It is part of the process for determining the maximum revenues the company will be able to earn from the operation of the Ultrafast Broadband network.”

Chorus wanted the asset value to be set at $80 million higher than the regulator’s figure. It made the case in its submissions.

Reduced maximum allowable revenue

The final difference is about one and a half percent short of that claim.

With these figures Chorus can expect a two to two and a half percent reduction in maximum allowable revenue.

Knowing it could have been worse for the company won’t please all the investors.

A long time brewing

It has taken a long time to reach this point. On my desk is a reporter’s notebook from mid-2017. Interview notes include mention of Commerce Commission moves to estimate the value of assets from before the fibre build started in the regulated asset price.

At that time, the interview source joked about people sitting around tables arguing about the resale value of old Chorus trucks and whether anyone would buy telephone poles.

It’s not an accurate representation of the process, but it paints an easy to understand picture.

Grumpy investors

You may hear grumpiness about the valuation process from Chorus investors.

Yet the company’s share price jumped 13 percent on the day the news was announced. The market has spoken and it says it likes what it heard from the Commerce Commission.

Getting the asset valuation right is more important than it may appear at first sight.

Private investors

The UFB network was a high profile public-private partnership where the government sought investment to build key infrastructure.

At the time, the project looked risky. Investors wanted a return that reflected the risk.

The project has been more successful than any early estimates. Investors have had a solid return. Yet they might not have done so.

There are investors who feel the valuation process retrospectively reduces the return on their investment.

How it looks

Whether this is true or not matters less than how it looks to the investment community.

Future governments may want to go back to investors to fund other projects. They will be less willing to invest if they think successful projects will be subject to a similar retrospective value reduction.

Which could mean the cost of private investment in government infrastructure projects will rise to reflect this.

In the same way, Chorus investors may feel reluctant about future investments in the network if the return on that investment is restrained.

G7 nations plan 15 percent tax on big tech

Finance ministers from the G7 group of nations propose a minimum 15 percent tax on large multinational firms.

The proposal aims at companies with profit margins of more than 10 percent. In the tech sector it would apply to the likes of Facebook, Google, Microsoft and Apple. It may not apply to Amazon as the company’s online shopping margins can be below the threshold.

Companies will pay taxes in the country where they make revenue.

The idea is that this will put a stop to the practice of companies billing all their New Zealand revenue through an Irish subsidiary. Big companies shift income to lower tax countries to avoid paying higher rates of tax.

Digital service tax

There is also a plan to abolish digital service taxes.

Countries use these to tax services like digital streaming. A firm might deliver this from overseas, collecting revenue in the consuming country.

Governments have used these taxes to get money from companies that otherwise bypass traditional collection mechanisms.

America, Canada, Britain, France, Italy, Germany and Japan make up the G7. The European Union is taking part in the meetings as a guest.

While these are large economies and make up a hefty slice of the world’s total, the tax reforms are unlikely to work unless other countries sign up. Australia, India, South Korea and South Africa will take part in the next round of meetings. Later the proposal will go to the G20.

Critics of the proposal say that a 15 percent tax rate is too low. It is lower than the company tax rate in many countries that are likely to sign up to the project.

Loopholes

No doubt the target companies will have teams of tax lawyers looking for loopholes.

There are plenty of complications. At his blog, Bernard Hickey points out the European and US governments are talking about different aspects.

They could be talking past each other.

It looks as if the proposal is a better deal for America than other nations. It is, after all, the home of many tech giants. Hickey says the losers will be tax havens. He suggests New Zealand could be more than $300 million a year better off.

Sometimes with projects like this, it’s important to establish the idea that these large companies pay any tax. From there, governments can make on to make sure they pay enough. Either way, this isn’t going to happen overnight and may not happen at all.

How artificial intelligence changes New Zealand work, jobs

Artificial intelligence is changing how New Zealanders work. More change is on the way. An Otago University report looks at the main effects and suggests ways of reducing damage.

The Impact of Artificial Intelligence on Jobs and Work in New Zealand takes a broad look at the subject.

There’s a lot in the report. If you have time, it’s worth a read. It covers controversial areas like AI being used for workplace surveillance.

Elsewhere it looks at what work should and should not be delegated to chatbots.

Balanced

It’s a balanced view. Yes, there is uncertainty about what AI means for jobs. Authors Professor James Maclaurin, Professor Colin Gavaghan and Associate Professor Alistair Knott say there are plenty of ways things could go badly, leading to widespread harm, unfairness and discrimination.

Yet they remind us it doesn’t have to be bad.

The authors talk about enabling AI which works alongside humans; “increasing efficiency, productivity and potentially incomes”.

This is as opposed to displacing AI which pushes workers into low paid work with technology taking on high value tasks.

Who gets to dominate?

It’s a big question which one gets to dominate in New Zealand and whether the benefits happen here or if they end up making Microsoft and Google shareholders richer and the rest of us poorer.

Maclaurin talks about the dangers of artificial intelligence increasing inequality and making high value work scarce.

He says the most promising way of dealing with this is to shorten the working week. Remember from the productivity report how we’re already working more hours than everyone else, so we’ve plenty of room to move here.

“Experiments here and overseas suggest that office workers can often maintain productivity despite dropping to a four-day week.”

Government support

Knott, who works in the computer science department, says: “To ensure this, New Zealand government should support local AI ventures.

“Companies in the social media space, offering targeted local products, are especially to be encouraged — particularly if they implement higher standards of privacy and transparency than the multinational platforms currently do.

“Government might even invest in such companies, as it did when setting up Kiwibank to compete with offshore banking concerns.”

There are useful practical recommendations including:

  • We encourage government to acknowledge Māori and Pasifika perspectives on work-life balance in evaluating New Zealand’s response to AI.
  • In the face of an uncertain future, New Zealand must discourage over-specialisation in education. Education and training at all levels must equip young New Zealanders with a broad array of the skills and expertise required for an AI driven world.1

  1. This is vital. Too often we hear our economy needs STEM education and that’s the end of the story. In truth, the humanities are every bit as important and will be more so as AI takes on more and more work. ↩︎

Digital Boost, Productivity Commission and living standards

On Tuesday small business minister Stuart Nash kicked off the Digital Boost Alliance. On Thursday a report from the Productivity Commission told us why business needs a digital shot in the arm.

The Digital Boost Alliance is a group of 20 companies. It was pulled together by Craig Young who heads Tuanz.

There are multinationals like Microsoft and AWS in the mix. You’d expect that.

Business support

The local companies in the alliance are more interesting.

Money, an important part of the digital equation, is represented by the five main banks operation here. Then come local tech companies: Datacom, Xero and, if we accept Australia as local, MYOB.

New Zealand’s telecommunications sector is represented by Spark, 2degrees and Chorus. Vodafone is a notable non-starter.

CertNZ and MBIE are in the mix. So is The Warehouse. While founder Sir Stephen Tindall is a keen personal supporter of initiatives like this, the Warehouse Group sells a lot of technology and supporting products to small business.

Mindlab is a member. It hosted the launch event.

Access and training

Alliance members aim to improve small business access to digital technology. More important they will help businesses get the training needed to make use of technology.

Each partner offers something different. There are offers of discounts of products and services, extra support, employee training and research.

It’s a big, ambitious goal.

World beating

Nash says he wants New Zealand to have the world’s most digitally-enabled small business sector.

We have been here before. Other initiatives have had similar goals. The difference this time is there is more money, broader industry support. It is a public-private joint venture.

Nash says the government kicked-in $44 million for digital training and advice in this year’s budget.

He singles out cloud computing. He says it has great potential. “A 20 percent increase in the uptake of cloud computing could be worth another $6 billion to the economy.”

Small business web sites

One industry speaker said only half of NZ small businesses have a web site. The implication being this is a measure of how much further we need to go.

Having a web site can help small businesses. It’s an efficient way of finding and retaining customers.

Yet it is not always appropriate. Many small businesses are subcontractors. They don’t need to sell themselves online. Nor do they need to spend money advertising with Google or Facebook.

Their digital needs are elsewhere.

Small business barriers to digital

MYOB surveyed small business owners. The results are revealing.

  • 41 percent say cost is the barrier to technology adoption.1
  • 22 percent say staff training is the barrier
  • 21 percent say a lack of knowledge is the issue.
  • 23 percent say the problem is the time taken to implement.

At the event I spoke to a couple of blokes from Innate Furniture, a Christchurch small business who flew up for the launch.

I assumed their story was going to be about how they built a website and sales took off. Instead they told me how last year they moved all their backend systems to the cloud and how that made a real difference to the business.

This is where there are huge benefits.

Why Digital Boost matters

First, New Zealand’s economy is more dependent on small business than many other economies. Small business accounts for a larger share of our GDP and a bigger proportion of jobs.

Larger companies can afford to have technology specialists on the team. With smaller firms responsibility might be with the owner. Most likely it will be with someone without training or experience.

Second, New Zealand small businesses are smaller than you find in other countries.

We’re talking about companies with a less than a couple of dozen employees and the majority are much smaller than that. In other countries these would be called micro-businesses.

Productivity gap

Third, our productivity lags other countries. Today’s Productivity Commission report says New Zealanders work longer hours than people in other rich-world countries and produce less in each hour they work.

  • 34.2 hours a week compared with a 31.9 hours average in the OECD.
  • $68 of output an hour compared with $85 average elsewhere in the OECD.

These numbers affect our living standards.

Innovation is key

Commission Chair Dr Ganesh Nana says: “Innovation is the key to unlocking New Zealand’s productivity. There are only so many hours in the day that people can work, so creating new technology and adopting new and better ways of working is critical to achieving effective change.”

Which means the Digital Boost project is timely.

If there’s one area both the Digital Boost project and the Productivity Commission agree on is that we need to do more than move people to digital tools.

Show how

The key here is to show people how they can use these tools.

There is an echo with cyber security. Many managers and business people think spending money on security products will solve the risks.

It can help, but without educating employees on how to think in more security conscious ways, that spending is wasted.

Spending money on new computers, software and services is a start. Yet it’s crucial to set aside part of the tech budget for training.

Skills essential for digital boost

Skills are essential to unlock the potential.

Likewise, it is important to use technology where it has the most benefits.

It’s no accident that Xero and MYOB are behind Digital Boost, moving to digital account keeping, tax paperwork and electronic invoicing can have an instant pay-off for a small business.

If Digital Boost delivers, Nash says it can be worth billions of dollars each year to the New Zealand economy.

That’s great, but meaningless to individuals, what matters more is that it has the power to lift everyone’s standard of living.


  1. I’d dispute this. Modern productivity tools are not expensive. ↩︎

Talking on RNZ about Digital Boost

You can hear me talking about this with Kathryn Ryan on RNZ Nine to Noon in new research into the impact AI could have on our work-lives. The broadcast also covers the potential to help shorten the working week and how CD-Roms are finally about to stop working…

Why New Zealand’s export games industry needs help

New Zealand’s games industry creates the exports and well-paid jobs that make government eyes light up.

To date the sector has outperformed almost everyone else. Sales double roughly every two years.

Selling photons around the world earns $20 overseas for every dollar made at home.

Last year the industry earned $323.9 million.

Now all that is at risk.

Australian land grab

Australia plans to hand video games companies a 30 to 40 percent tax incentive.

That, says the local industry, will trigger a brain drain across the Tasman. Investment will follow in its wake.

You could view it as a land grab.

Chelsea Rapp, who chairs the New Zealand Game Developers Association says: “Any chance we had of attracting overseas studios to set up shop in New Zealand ends in 2022, and some New Zealand studios are already looking at expanding into Australia instead of expanding locally.”

The Australian government scheme gives game developers a 30 percent refundable tax offset for production from 2022.

On top of the federal money, several Australian states have their own offers which could add a further 10 percent to the lure.

There’s a suitable vehicle

It’s common when stories like this emerge that the local industry body calls on our government to match the Australian incentives.

Yet, there is a New Zealand scheme in place that is similar to the new Australian one.

The New Zealand Screen Production Grant hands out similar sums of money to film and TV companies planning to shoot here. Most of this goes to overseas companies who move here for a while, then pack up and leave at the end.

Games companies are not able to get this grant.

Here for the longer term

The NZGDA points out that games companies are not likely to pull out immediately after completing a new production. Instead they hang around and start again, either on a sequel or a new project.

In other words, pouring money into the games sector keeps jobs and investment ticking over.

There are arguments that governments should not subsidise industries. And there is always a risk of a race to the bottom with Australia.

Almost everyone in business can make an argument why their needs deserve support.

Yet in this case the subsidies and race to a bottom risk are already in place. At least for the film sector. It doesn’t make sense to exclude the games market.

What’s more, the games industry often interacts with and swaps skills and personnel other high tech sectors. Keeping it here in New Zealand will benefit the entire home grown technology scene.

Rural mobile closing the gap thanks to RCG

New Zealand’s rural mobile users face slower download speeds than people in towns. In almost every case the rural mobile experience is worse.

Although the gap between rural and urban has closed, it could open again as carriers roll out 5G networks.

Opensignal’s May 2021 mobile network experience report puts the improvement down to government-led initiatives.

Both the updates to the Rural Broadband Initiative and the Mobile Black Spot Fund have played a role.

Rural Connectivity Group kudos

Above all, credit must go to the Rural Connectivity Group. This is a joint venture between Spark, Vodafone and 2degrees set up to deliver rural network upgrades.

The three companies had government funding and invested their own money to build additional cell sites in areas needing extra coverage.

To date there have been 200 new RCG towers. Eventually there will be more than 500. If it seems like only yesterday there were 100 RCG towers, that’s because it happened less than a year ago.

RCG carriers share spectrum and resources. The towers are open access, other carriers can use them.

RCG delivering

Opensignal’s analysis shows the programme is already delivering results. There is more to come as further towers are added to the network.

To measure mobile network performance Opensignal collects data from handsets. The business is UK-based and produces similar research in a number of countries.

UK-based Opensignal says the gap between rural and urban mobile experiences is closing.

In its May 2021 report Opensignal says while disparities between rural and urban mobile remain rural mobile is improving.

Time connected to 4G

It reached this conclusion by looking at the proportion of time users spend connected to 4G networks.

In recent months this figure has increased at a faster rate for rural users than those in urban areas. Although rural comes from a far lower base, it is catching up.

Opensignal takes a competitive view of performance. It also zooms in on applications like video and mobile gaming. Yet the interesting angle is how the urban – rural mobile gap is closing.

It ranks the three carriers against each other. If you’re wondering about Skinny, that’s a Spark brand with customers using the Spark network.

2degrees shows the greatest improvement, Vodafone the least.

Customers on the Vodafone network saw the gap between urban and rural time on 4G networks fall 4.8 percent. For Spark users the drop was 5.8 percent. At 2degrees it fell 7 percent.

Closing the gap

Opensignal says before the Covid lockdown 4G availability for rural users was close to 25 percent behind urban levels. Now it sits at around 17 to 18 percent behind.

The report goes on to compare the mobile experience with different types of use. It says only 2degrees urban customers enjoy an excellent video experience. The company’s rural customers do better than Vodafone’s urban customers.

Meanwhile the mobile games experience is underwhelming everywhere. The three carriers deliver a ‘fair’ gaming experience in urban areas. This drops to ‘poor’ outside the towns and cities.

Opensignal scores for rural download and upload speeds are a long way behind urban speeds. Spark is fastest overall. Its urban customers can download at an average of 41.9Mbps. In rural New Zealand, 2degrees’ customers get less than half that speed: 20.2Mbps.

5G can close or open rural mobile gap

The report concludes that if carriers use 5G on lower frequency bands in rural areas, the performance gap with urban mobile would close.

Eventually carriers will be able to use a range of frequencies for 5G.

The distance a mobile signal covers changes depending on the frequency. Lower frequencies travel further, higher frequencies cover a small area. There’s more bandwidth the higher you go up the spectrum.

Alternatively, if they focus on adding high capacity in urban areas, the mobile digital divide will widen.

To date Vodafone has concentrated on building 5G in urban areas. That’s where it sees the greatest demand, not necessarily the greatest need.

Spark started its 5G build in small South Island towns. Now it is building capacity in the main centres.

If the government wants to narrow the rural mobile experience gap, it may need to impose usage conditions on 5G spectrum in future auctions.