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Australian Financial Review : October 17th 2006
FBA 058 The Australian Financial Review Tuesday 17 October 2006 www.afr.com 58 LETTERS Packer gets ahead of the game From back page Separately, the increase in Promina's stock price yesterday would suggest some have finally correctly concluded the chance of any Australian Competition and Consumer Commission intervention is not nearly as strong as some had suggested. T elstra's long-running misleading campaign on regulation appears to have everyone confused on the ACCC's stance. Starting from basics, the ACCC's raison d'etre on telecommunications policy is to encourage so-called facilities-based competition. That is, it is trying to encourage investment in competing forms of communications delivery. Telstra's basic copper wire, which forms the backbone of its present dominance is, naturally enough, regarded as national monopoly infrastructure ± which explains why access to it is regulated to encourage competition, as through DSLAM network devices and the like that offer competing broadband delivery. But if Telstra plans to introduce its own higher-speed broadband, knownasADSL2+,asis suggested either later this month or early next, then the ACCC would have no interest in declaring it for regulatory purposes. It would intervene only if Telstra was seen to be using its own rollout to prevent others competing or, in other words, abusing its market power. All this is publicly stated policy. The same principle applies to the new 850 megahertz mobile spectrum. This is new infrastructure, in a competitive market with competing technology (existing wireless broadband and wi-fi as pushed by Austar and Unwired). The actual mobile towers are installed under the condition that others can use them for their transmitter systems. The CDMA network was built in part with federal government funds, which explains why roaming on the network was easier, but in the case of the new network it would seem it was built with company funds ± so roaming should be subject to normal commercial terms. Optus's claims that it should have guaranteed access to the network are nonsense, because there is nothing to stop it investing in the same or different technology. Any attempt by Telstra to present the state of play as anything different or for anyone to view the coming speech on the issue by ACCC boss Graeme Samuel as some great mystery can be ignored as game playing or discounted because the basic principles are simple. The speech will be used to run through the issues because the ACCC hasn't formally reached a decision on the new mobile network, but the principles are clear. The confusion comes only when the incumbent phone company steps over the line. Its fights on de-averaged wholesale prices head to the Australian Competition Tribunal in December, and over the next few months the ACCC will be conducting arbitrations on unbundled local loop pricing, which suggests final policy on these issues will be 2007 decisions. John Durie firstname.lastname@example.org Just forget the mood swings, girls are great From back page Anyway, that left me with one daughter and one son, but this changed when one of my daughter's classmates, a boarder from the country, came to stay for the last few days of school holidays. For the first time, I had two girls and only one boy in the house and the difference was like moving from Deadwood to the Plaza Hotel. The noise level is the first thing you notice because boys, for example, can watch television only at Boeing 747 take-off volumes and their idea of a quiet conversation sounds like ringside at a professional wrestling match. And let's not dwell on that magical smell teenage boys can give to their bedrooms -- sort of an eau de public toilets gently marinated with Thai restaurant leftovers. The conversation itself became more erudite, which tends to happen when you don't punctuate it with burps, grunts or . . . nothing at all. My daughter Mercedes and Dominique had a few talks with me and. . .getthis. . .theyactually made some sense. Not that the boys don't make sense; it's just only to each other. As I recall, males don't start making sense to the rest of the general population until they're about 30, and that's provided they don't get into the legal profession or take up golf. Dom also turned out to be a great cook, producing a pasta carbonara meal that wasn't afraid of garlic. You young guys out there, debating about tall girls, short girls, blonde girls, etc. Forget about it. What you want is a garlic girl. Take your Paris Hilton. This is not a garlic girl. But Jennifer Lopez? Garlic girl. A female who likes garlic is a female not to be messed with. The other nice thing about having the balance shifted was the level of civility that went along with it. Guys don't go out of their way to be rude in the house, but it's just not natural for them to, say, not bump into furniture or people fairly frequently, and then not say anything about it. Guess I'm lucky I at least had one girl. The mood swings are worth it. Peter Ruehl Tax differences corrupt capital markets The debates about tax imputation and off-market capital buybacks emphasise the inevitable corruption of capital markets by differential tax rates. The preferential tax rates on capital gains and the different tax rates for companies and individual persons are the main culprits. John Ralph, the accountant, points out (''Think before dropping tax imputation'', Letters, October 13) that the main feature of the imputation system is the equity it provides between taxpayers. Perhaps Ralph, the banker, can explain the equity in the banks' enthusiasm for redistributing imputed tax benefits in favour of some shareholders by attaching them to off-market share buybacks instead of distributing them pro rata to all shareholders in the form of increased ordinary or special dividends. The banks have been major players in the off-market share buyback business. It is generally assumed that superannuation funds are, or can be, major beneficiaries of this practice. The banks are major managers of superannuation funds, generating substantial fee income. Their off- market share buybacks with imputed tax benefits attached would, in effect, redistribute the imputed tax benefits due to many shareholders to the members of superannuation funds and maybe to other big bank clients. The latent tensions and conflicts involved in the banks' big stakes in the burgeoning, government-driven funds management industry have yet to be acknowledged. The off-market share buyback debate is limited by lack of forensic evidence. If the Australian Securities and Investments Commission or the commonwealth Treasury have investigated patterns off acceptance of these buybacks they are keeping the results to themselves. Perhaps it is an issue the Reserve Bank of Australia could put some researchers onto as it did with dual listing a couple of years ago. Tax imputation and the capital gains tax pull in opposite directions as far as dividend policy is concerned. Tax imputation encouraged higher dividend payouts. The concessionary capital gains tax encourages higher profit retention to build up shareholders' funds, and, hopefully, their market value. Both have important consequences for competition policy. As an extreme example, a company could pay out all its profits as dividends and rely on raising new capital for expansion. New competitors, also relying on new capital raisings, would thus find it easier to compete. Nicholas Gruen suggests abandoning tax imputation for a 20 per cent corporate tax rate. The increased incentive to plough back earnings rather than pay higher dividends would suit some shareholders, particularly executives on high salaries who are also substantial share and option holders, but not others who rely on dividend income to live. It would also give a substantial competitive advantage to existing companies against newcomers entering the same industry. Microsoft has been a special example of this, attracting the critical and costly attention of competition regulators in the United States and Europe. News Corporation has a long history of low dividend payouts. Gruen argues that the lower company tax rate would encourage foreign investment, which implies that foreign investment is being discouraged by the current regime. Xstrata, Kohlberg Kravis Roberts, the Carlyle Group, the bidders for Vision Systems, and the many other overseas investors and break-up merchants prowling the market for buying opportunities must have come to the wrong country. V. J. Carroll, Paddington, NSW. Climate change Given that he has been among the last of the so-called greenhouse sceptics to show signs of recanting, it is unsurprising that the Prime Minister has trouble understanding why everyone is not behind ''clean and green'' nuclear power (''PM stands by 'clean, green' nuclear power'', October 16). Nuclear power has a very unclean connection with long-lived radioactive waste and nuclear weapons, and John Howard's claim that ''it doesn't emit greenhouse gases'' ignores enormous fossil fuel inputs into the nuclear fuel cycle. It is also horrendously expensive and pursuit of the nuclear option threatens investment in far cleaner energy efficiency and renewable energy options. Perhaps these are among the reasons why Australians have had difficulty understanding Howard's long-term refusal to accept the potentially-serious reality of climate change, let alone display any leadership on the issue. Bro Sheffield-Brotherton, Elsternwick, Vic. AMP: put money where mouth is In stating that, ''Asset managers who can add sustainable value to funds are hot property'',(''Hands off CEOs' pay: AMP chief'', October 11), is Andrew Mohl being misleading, or has he been misled? Suppose that active asset managers actually add no value whatever, but that their annual returns have a random 50 per cent chance of falling either above or below the market. Given a thousand asset managers,125 could expect to score above market for three straight years and 30 could do that for five straight years. There's a fair chance that high returns could even favour the odd one for an eight-year stretch. (It's just like repeatedly tossing a coin for a string of heads). Is this the ''sustainable value'' that Mohl wants investors to pay for? Given, further, that increasing numbers of funds clip the return for 15 to 20 per cent when above benchmark (''Performance fees: light brigade charges in'', ibid), snouts in the trough are getting far too greedy. If ''hot property'' asset managers can truly add ''sustainable value'', let's see AMP put its money where its mouth is: give us a fund that takes a performance fee but pays an equivalent penalty when the benchmark isn't met. If its asset managers are adding sustainable value then they will surely be richly rewarded. Mike Martin, Newtown, NSW. Education policy veers off the rails The passionate crusade by Howard ministers to weed out the so-called ''left-wing bias'' of the education establishment is creating federal- state tensions and diverting precious ministerial time from much more pressing education issues. On most international benchmarks, Australia has high average education standards. Where we lag behind other countries is in the extent of inequalities of access and outcomes. The Organisation for Economic Co-operation and Development puts us in the ''high quality, low equity'' box in its international comparisons. The main equity problems that state and federal governments should be seeking to remedy are: the long-standing neglect of pre- schooling, the growing disparity in per student funding and outcomes between our public and private schools, the uneven access to adult training and lifelong learning, the large and growing digital divide, the geographical disparities in education standards (both within urban Australia and between urban and rural/remote areas), and the growing socioeconomic divide in access to our universities. These inequalities of opportunity are causing a huge waste of potential human capital. They are also an affront to the deep-rooted Australian belief that people of equal intelligence should have an equal chance in life if they are prepared to study and work hard. This belief is a key part of the glue that holds us together as a society. Federal and state governments are belatedly nibbling at problems such as in training. But while Canberra remains preoccupied with cultural wars, there will never be a concerted co-operative assault on education inequalities. Fred Argy, Visiting fellow, Australian National University, Canberra, ACT. SUBMITTING LETTERS Faxes: (02) 9282 3137; email: email@example.com (file attachments are not accepted) Less than 400 words preferred.