Uncharted Territory

May 25, 2016

Marketing Live Chess Broadcast Rights

Background: Agog at Agon’s Candidates Broadcast Monopoly

The moves of chess games have always been in the public domain.  Anyone can quote them in any medium including whilst games are in progress.  Indeed, in recent years live internet broadcasts of commentary on games at chess tournaments and in matches have become very popular with the chess community.

It was in this context that several chess websites geared up to broadcast commentaries on the most significant chess tournament of 2016, the Candidates tournament in Moscow which opened on March 10th.  The winner of the Candidates gets to play the current World Champion in a match for the title of World Chess Champion, so we’re all looking forward to watching Sergey Karjakin challenge Magnus Carlsen in November. But two days before the Candidates started, the organisers, a company called Agon, working with the worldwide chess federation, FIDE, forbade anyone else from broadcasting the moves until 2 hours after each game.  They did this by requiring anyone accessing the official website to sign a “Clickwrap Agreement” agreeing not to retransmit the moves.  Presumably onsite spectators and journalists were subject to similar restrictions.

Malcolm Pein, the editor of Chess magazine, noted in the May 2016 issue (p.4-5) that Agon’s attempt “to impose a new order on the chess world” were “cack-handed” and it is indeed very unfortunate that FIDE has been involved in preventing a number of websites from supporting what I would have thought is its core objective, promoting the game.  The sites are likely to have incurred costs as a result, perhaps having committed to pay commentary teams.

Furthermore, as Pein notes in his Chess editorial, aspects of the Agon Candidates commentary left something to be desired.  He highlights an unfortunate incident when the moves were inadvertently shown swapped between games at the start of the last round.  I noticed that too, and was also confused for a moment by the disconnect between the commentary and what actually appeared to be happening, but much more serious was the quality of the commentary itself.  I felt it was interrupted much too often for breaks, usually to show the same couple of ads, plus what I’ll describe as “pen-portraits” of the players (cartoon-style drawing accompanied by commentary).  These were quite entertaining the first time you saw them.  Not quite so much the tenth time.  And, although the commentary team obviously worked hard to help the audience understand what was going on, I’ve enjoyed other commentators somewhat more.  The commentary is much more important in chess than say football, since (as non-players will appreciate!) there are periods of a game when there’s nothing much to see happening on the board.  I would have liked the choice to watch another broadcast.

Steve Giddings writes, also in the April edition of Chess (p.8-9), that preventing unauthorised broadcast of chess games is in “the commercial interests of the game”.  That may be so, but it seems to me that monopoly broadcasting is not the best way forward.

Given the goals of promoting chess by maximising the number of viewers of chess matches and tournaments and maximising revenue from the broadcast of elite events, simply in order to pay for them, a better option would be to license multiple broadcasters, if they’ll pay collectively more than would a single exclusive media outlet.  I outline in this article how the revenue-maximising number of broadcasters could be established by a simple process of bidding for a share of the rights.

First, though, let’s consider how other sports rights are sold and then whether times have changed – perhaps other sports might want to reconsider granting exclusivity – and how chess is different. I focus particularly on the case of domestic rights to broadcast the English Premier League.

The Football Precedent: English Premier League Live Broadcast Rights

When I was a kid, the FA Cup Final was always shown live simultaneously on both BBC1 and ITV.  So much for consumer choice – at the time there were only 3 channels (the other one being BBC2).  Nevertheless, there was competition, of a sort.  Sometimes we’d switch over to see what they were saying on the other side, though when the ads came on we’d switch back.

One might wonder why ITV would bother broadcasting the Cup Final when it was also on BBC (without ad breaks) and, indeed, why the FA would sell it to two broadcasters rather than just one.  I can think of two considerations:

  1. There was some product differentiation between the broadcasts on BBC1 and ITV.  The channels employed different commentators and pundits.  This produces what I would argue is healthy competition for viewers between broadcasters.
  2. Strange though it may seem to many younger readers, back in the day many – perhaps most – households watched either ITV or BBC almost exclusively, even though they both were (and still are) free-to-air.  It could be argued that the choice between watching BBC and ITV used to be very much driven by social class or at least the social class households identified themselves as belonging to, but that is actually irrelevant to the argument.  The point is that broadcasting the FA Cup Final on both ITV and BBC ensured that the product reached more people – ITV viewers and BBC viewers – than it would have done had it gone out only on BBC or ITV.

Presumably ITV could attract enough viewers and sell enough advertising to make it worthwhile to broadcast the FA Cup Final even though BBC1 was showing it too.

Sports Broadcast Monopolies

Why, then, you might ask, is almost all football shown in the UK now, in 2016, indeed, almost all sport (and much other content besides), broadcast on just one channel?  That is:

  • why have sports broadcast monopolies developed?;
  • why do sports administrators tolerate and even encourage broadcast monopolies?;
  • and whose interests do sports broadcast monopolies actually serve?

Some years ago I had the dubious pleasure of a job interview with BT; actually they wasted an entire day of my time at their recruitment centre (and even more with some further interviews later on).  The question arose in discussion – I guess after we’d noted the ongoing convergence of internet and broadcast media – as to how BT could best grow their broadband market.  I suggested offering some exclusive movies.  Perhaps my interlocutor was playing Devil’s advocate, but I don’t think so; regardless, he seemed to be arguing that they should market on the basis of their whizzy new network.  No, no, no!  The vast majority of consumers care only about what appears on their TV; they don’t care at all about the underlying technology.  And if there is some exclusive content – I mentioned movies at my BT interview because Sky had already “done” sport – that is likely to be decisive in winning customers.

It seems clear from their enthusiasm to enter into them that exclusive deals for live sport transmission rights are in the interests of subscription broadcasters, particularly when  trying to build a customer base.  We have the example of the English Premier League (EPL) and much other sport (as well as films and other content) on Sky, now being contested by BT.  Netflix and Amazon are exclusively hosting supposedly must-see drama series.

As a consumer, I’m always wary when I’m told something is “exclusive”.  The very word suggests to me that someone is being ripped off.  Probably muggins.

But let’s not jump to conclusions.  Besides, what we’re really interested in is the health of the sport – that is, chess, when I get to the end of this preamble.

So, could exclusive sports rights sales be in the interests of the sports themselves?

Well, when broadcasters are trying to grow their business – think of Sky and the EPL – they may be prepared to pay what appears to be a substantial premium for a monopoly.  I say “appears to be a substantial premium” because at some point the broadcaster has to demonstrate income (advertising and/or subscriptions) commensurate with the expense.  Otherwise they go bust.

It’s not immediately apparent, and, indeed, somewhat counter-intuitive, that a single broadcaster of live events or TV series can unlock more advertising and/or subscription income than can multiple broadcasters of the same material.  Nevertheless, many sports administrators appear to believe monopoly broadcast deals are in the interest of their sport.   At least in the short term.

An example of what can happen in the longer term is provided by EPL broadcast rights in the UK.  Sky held the exclusive rights from the start of the Premier League in 1992 until 2007.  After the European Commission ruled that Sky should not have exclusive rights to all matches, they had competition, first from Setanta, who ran into financial difficulties, then ESPN, who took over Setanta’s rights and most recently BT who came into the market in 2012 prepared to bid aggressively against Sky for a whole range of football and other sports rights and apparently with equally deep pockets.  Guess what happened once there was competition?  The total paid for EPL live transmission rights went up.  Considerably.

Note, though, that what Sky and BT bid for is how much of the monopoly each enjoys.  They are not in direct competition, in the sense of broadcasting the same matches, as BBC1 and ITV used to be in the case of the FA Cup Final.

The only logical conclusion is that – given that live broadcast rights to the EPL have a definite value represented by the income they can generate – they were previously being sold too cheaply!  Who’d have thunk it?

Players on £50K a week 5 years ago should be a bit miffed.  They could have been on £60K!

Why are BT and Sky paying more than Sky alone did?

Is it a conspiracy against the consumer, as I once read a commentator claiming?  Apparently, he wrote (I think it was a “he”) EPL fans would now have to buy two subscriptions.  As someone who only buys one, it might be worth pointing out that, unless it’s your team playing, or a key fixture (in which case there’s always the option of going to the pub – a form of pay-per-view) it doesn’t make that much difference which match you watch.  You don’t know in advance whether a particular match is going to be exciting.  In other words, if you’re only going to watch 20 matches a season, there’s not much point paying for 200.

Are BT and Sky trying to buy or defend market share and therefore overpaying?  Well, there may be an element of this, but, first, from the point of view of the sport this is a good thing.  Second, companies can’t do this for ever.  BT is now established in the market.  I doubt they’d be paying so much for 3 years of broadcast rights if they didn’t think they’d make money on the deal.

Has BT unlocked market segments Sky wasn’t reaching?  Yes, I believe so.  I pay a small add-on to my broadband internet deal to receive BT’s sports channels, which I watch online, on a PC.  For the number of matches I actually manage to watch I can justify this cost, but not a Sky subscription (plus charges for set-top boxes and so on).

But it may also have been that Sky was paying less than the EPL transmission rights were worth and making excess profits as a result.  These have not necessarily all appeared as profits in its accounts, but may have also been reinvested, for example, in establishing a dominant position in the UK in the broadcast markets for other sports, such as cricket.

A market needs to be competitive to establish the real value of a product.  It’s in the long-term interests of sports themselves, I suggest, to maintain a competitive market for broadcast rights and not allow monopolies to develop.  Such monopolies might end up underpaying until a competitor eventually challenges them, as, I argue, appears to have happened for EPL live broadcast rights in the UK.

In addition,  it’s in the long-term interests of sports for as many people as possible to be able to watch them.  This is best achieved by a number of broadcasters with different business models reaching different segments of the market.  It’s worth pointing out that sports administrators sometimes ensure that at least some events are “free-to-air” in order to show-case their product, for example the World Cup and, this summer, the UEFA Euro 2016 tournament (at least in most European countries).  This month’s FA Cup Final was broadcast on the BBC as well as BT Sport.

Differences Between Chess and Football

After that somewhat longer discussion of football than I had intended, let’s get back to chess.  As I’ve argued, even football could consider selling live transmission rights to multiple broadcasters, but are there differences between chess and football) that make monopoly broadcasting a less attractive option in the case of chess?

I believe there are several relevant (though interrelated) differences:

First, live chess is typically broadcast globally, over the internet.  This means that the peculiarities of local markets are much less relevant.  For example, in the UK the playing field for broadcasting football was uneven when Sky entered the market.  Sky had to have content that was not available to the free-to-air channels ITV and the BBC or no-one would have subscribed; and it needed subscriptions to fund the cost of its satellites.  OK, there is at least one place where chess appears live on TV: Norway, home of the World Champion, Magnus Carlsen.  But given the general reliance on the internet for broadcasting chess, it makes sense to simply leave distribution to the broadcaster and not sell rights separately for different platforms (TV, internet, mobile devices etc).

Second, and related to the first point, the world has moved on in the quarter-century since the EPL broadcast model was established.  To some extent sports channel subscription revenues funded a dramatic increase in the number of channels available by enabling satellite and cable TV.  But with the growth of TV over the internet, the potential number of channels is vast, and the entry-cost considerably lower than in the past.  Broadcasters don’t need huge guaranteed revenues to justify their business models.  Furthermore, given the flexibility of advertising charging that is possible on the internet – essentially payment depends on the actual number of viewers – advertisers do not need historic broadcast data.  They’ll just pay for what they actually get.

Third, the commentary and presentation is a more significant part of the overall package in the case of chess than it is for football.  Personally, for normal tournament commentaries I’m as much interested in who’s commentating than who’s playing.  I’d be much more likely to tune in if Maurice Ashley, Danny King or Peter Svidler are explaining a game.

Fourth, chess is still at the experimental stage, still trying to explore what works best in live transmission.  It doesn’t make a lot of sense to stifle this process by restricting the number of broadcasters to one.

Fifth, interest in chess is global.  Viewers might appreciate broadcasts in their own language as well as English.

Sixth, there are a limited number of marketable chess events.  To promote the game, as well as maximise revenues, it makes sense for these to be available to as many viewers as possible.

Seventh, I don’t believe there is a pot of gold waiting for someone able to sell advertising round chess events.  Compared to football, it’s always going to be a niche market.  Indeed, for many of the chess sites – Chess.com. Chess24.com, the Internet Chess Club (ICC), Playchess.com and so on – that broadcast (or might broadcast) elite chess events, covering live events is, unlike in the case of football, only part of their offering to visitors to their site (who may pay a subscription).  These sites also allow you to play online, host articles and instructional videos and so on.  Unlike the sports channels of Sky or BT, losing live transmission rights is not an existential threat.  They are therefore unlikely to pay huge sums for monopoly rights.  Collectively, though, they may pay a decent amount for something that is “nice to have”.  The resulting choice for viewers would also be beneficial to the game and raise broadcast standards.

For all these reasons it seems to me that it makes sense for chess events to be hosted by multiple broadcasters.

Price Discovery for Chess Broadcast Rights

Before considering the mechanics of an auction for chess broadcast rights, let’s first establish a principle: all broadcasters will pay the same price.

Live sports transmission rights are generally sold territorially.  That’s messy already – people cheat by importing satellite dishes from neighbouring countries and so on- but in the age of internet broadcasting its unworkable.

One might also consider language restrictions.  Why should a broadcaster be able to reach the whole Chinese population or the English, Russian, French or Spanish-speaking world for the same price as an Estonian native-language broadcaster?  Well, don’t worry about it.  The market will take care of things.  Broadcast auctions will be a repeat exercise and, if the price is low compared to the size of the market in a specific language, that will simply encourage more broadcasters.

What if some broadcasters are mainstream TV channels, in Norway, for example?  Again, don’t worry about it.  Just leave distribution up to the broadcasters.  TV channels are competing with internet broadcasters.  The only restriction should be that a one licence – one broadcast rule.  If a broadcaster wants to transmit to multiple audiences, in different languages, say, or by producing different versions tailored to experts and the general public, then they have to buy two or more licences.

What would the broadcasters buy?  An automatic feed of the moves (top events nowadays use boards that automatically transmit the moves electronically) is obviously essential.  Since you don’t want numerous video cameras in the playing hall, the organisers (or a host broadcaster) would also provide video feeds of the players, often used as background to the commentary (generally in a separate window).  Post-game interviews or a press conference are also usual and these could be part of the package, as could clips from the recent innovation of a “confession-box”, where players can comment during their game.  Broadcasters would edit these video feeds together with their own commentary to produce their final product.

Let’s make one other thing clear about the objective of the auction process.  The goal is to maximise revenue.  This is not in conflict with the goal of maximising the online audience and thereby promoting the game.

So, how would the auction work?  How can we maximise revenue from an unknown number of broadcasters all paying the same price per transmission stream?

Here’s my suggestion.  The broadcasters would be required to submit a number of bids each dependent on the total number of broadcasters.   That is, they would bid a certain amount to be the monopoly broadcaster, another amount (lower, assuming they act rationally!) to be one of two broadcasters, another amount to be one of three, and so on, up to some arbitrary number, for example to be one of more than ten broadcasters.

The chess rights holder – FIDE, for example – would simply select the option that generates most revenue.  All bidders would of course pay what the lowest bidder offered to be one of the specific number of bidders chosen.  E.g., if 2 bidders are successful, one bidding $70,000 to be one of two broadcasters and the other $60,000, both would pay $60,000.  In this case, neither broadcaster, nor any other, would have bid more than $120,000 for exclusive rights and no 3 more than $40,000 to be one of 3 broadcasters, nor 4 more than $30,000 to be one of 4, and so on.

For example, it may be the case that one bidder bids more to be the sole broadcaster than any two bid to be dual broadcasters, any three to be the only three broadcasters and so on.  In that case, one broadcaster would secure a monopoly.  Or, at the other extreme, 12 broadcasters might, for example, bid more to be one of “more than ten” broadcasters than any sole broadcaster bid for a monopoly and so on, and more than 13/12 times what the unlucky 13th highest bidding broadcaster bid to be one of “more than ten” broadcasters, 14/12 times what the 14th highest bidder bid, 20/12 times what the 20th bid and so on up to the total number of bidders.

It’s my guess that revenue will be maximised for a World Championship match by a relatively large number of bidders.  And the crucial point is that the more broadcasters, the larger the audience and the greater the choice for viewers.

 

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August 28, 2012

MonopolyWatch: Thames Water’s Counting Difficulties

Our vision: If customers had a choice, they would choose Thames Water.
– signoff on email from Do.Not.Reply@thameswater.co.uk.

I don’t know why that quote creases me up, since it expresses a very sensible aspiration. Maybe it’s because it could be so easily adapted: “Our vision: If voters had a choice, they would vote National Socialist/Communist/United Russia [delete as applicable]”. Or maybe it’s just my sense of humour.

I’ve recently had to move home, so am experiencing no end of hassle, in large part in dealing with various utilities and suppliers. This has led me to formulate a hypothesis: the level of incompetence of an organisation is directly correlated with the extent of its monopoly.

So, as an aside within this inaugural MonopolyWatch newsletter, perhaps US car rental customers should start to worry with Reuters reporting that:

“Hertz Global Holdings [has] agreed to buy rival Dollar Thrifty Automotive Group for about $2.3 billion in a deal that puts about 95 percent of the U.S. car rental market in the hands of three companies.”

Why do we allow takeovers, such as of Dollar Thrifty by Hertz? Do we really believe that 3 choices is enough to ensure healthy competition throughout the entire US? It seems to me that in most markets the presence of at least 10 suppliers is necessary to provide sufficient consumer choice and drive continual quality and feature improvements and cost reductions. Surely “consolidation” across industries such as car rental is driven almost entirely by large organisations seeking to achieve a greater degree of monopoly power? So why don’t we – or at least our elected representatives and public officials responsible for the health of the overall economy – resist this process more strongly?

Back to Thames Water. They’re not the worst, but not far from it. Ealing Council, for example, have no rule for deciding who pays the Council Tax on the day you move. Or perhaps they do have a rule, but don’t understand it! Let me explain: you don’t move in or out at midnight, but Council Tax applies – and there seems to be little disagreement on this point – per calendar day, i.e. from midnight to midnight. In fact, likely you formally move some time around midday, let’s say at 11am on 16th August, for the sake of argument. So who pays the Council Tax for 16th August, the person moving out or the person moving in? Simple enough, you’d have thought. (For the record, I’d expect the rule to be along the lines of hotel room bookings, i.e. the person moving in on 16th pays the Council Tax for 16th, just as if you booked a hotel room for “the night of 16th” that would be the night starting on 16th and ending on 17th!).

How could Thames Water match this? Well, they make a clear distinction on their website between customers moving within their catchment area and those moving outside it:

Clearly, if moving out of Thames’ catchment area means you “need to close your account”, the implication is that moving within the catchment area keeps it open. They even ask you for a moving-in date to the new property. This makes some sense, since there may, as in my case, be an overlap, i.e. the rental for the new place started before the one for the old place ended. I don’t think it’s just me being pedantic: asking for information about where you are moving implies Thames are going to carry the account over, as, for example, Virgin Media do (more about those scum another time).

But whoever is moving out from the new property will also have told Thames you are moving in. Does Thames’ website sort this out in some intelligent manner, e.g. by overriding or matching the names provided by the previous resident at the new property? Seemingly not.

And does Thames’ website ask if you want to carry over your Direct Debit when you move? Nope.

So, after telling Thames where I was moving, I then received a letter inviting me to pay by Direct Debit. Has this resulted from me telling them I’ve moved or from the the landlord telling them I’ve moved in? No idea.

Do Thames reassure customers in any way that they will not be billed twice for the property they are moving to. No.

Is it actually possible I could even end up paying twice? Who knows?

Since I now have a new account number and have had to set up a new payment arrangement, is there any sense in which the account at my previous address has not been closed as if I’d moved out of Thames’ catchment area? Seemingly not.

Nevertheless, I dutifully went on line and set up a Direct Debit to Thames. This is where the tale really takes off. What day of the month did I want to pay on? I selected 15th. But when I went to the next screen the form showed 14th. So I pressed “Back”. Big mistake.

This screen-grab shows what I saw next:

Yeap, no “14”. So “15” is interpreted as 14th in the list, I guess.

Thinking maybe I’d inadvertently selected 14 instead of 15 the first time and that Thames’ had implemented a new form of drop-down list omitting the current selection, I selected 15 again. No dice: the next page still showed 14.

I decided to settle for paying on 14th. And guess what? That wasn’t the only problem with this one simple web page. No sirree. Even though all the data I’d entered – name, address, bank account etc – was showing on the screen, the software didn’t think it was there. I had to enter it all again.

On one level it is a bit odd having alternative gas and electricity suppliers all selling an identical product, coming along the same pipes or wires. Given no differences in what is supplied, one should expect little difference in prices. But at least you can choose energy suppliers that are competent in handling the billing process. Why not allow the same for water?

September 16, 2011

Off the Buses in Ealing

I reported yesterday that TfL is planning to increase fares on average by RPI+2 each year until 2018, and Travelcard prices by RPI+3 over the same period, the supposed justification being that rail fares are to rise by RPI+3. I briefly discussed the implications of this discrepancy, but had a subsequent conversation which led me to consider a different case.

I don’t know about you, but I always feel short-changed if I buy a season pass for a transport network and then find I’d have been better off paying for each journey individually. How likely is this to happen for someone living in Ealing, but working in central London a) now and b) in 2018?

Case 1: A morning and evening peak commuter
This individual uses the tube during the morning and evening peak and sometimes catches a bus back from the station.

In the following table I’ve ignored inflation and just increased costs by 2 or 3% p.a. So in today’s prices a zone 1-3 Travelcard will cost £41.55 in 2018, compared to £34.80 in 2012.

Year   Travelcard cost       Less 10 peak tube fares      Bus fare cost         No. bus fares to break even
2012         34.80                     34.80 – 10*3.10 = 3.80         1.40                             3.80/1.40 = 2.71
2018         41.55                     41.55 – 10*3.49 = 6.64         1.58                             6.64/1.58 = 4.21

So whereas in 2012 our peak commuter would only have to catch the bus 3 times in 2012 to avoid feeling cheated on a weekly Travelcard, he’ll have to catch it 5 times in 2018. If, like me, he walks to and from the station most of the time, he’ll be in a bit of a dilemma by 2018 as to whether or not to buy a weekly Travelcard.

Case 2: A morning peak and evening peak/off-peak commuter
It gets even worse in the case I actually discussed yesterday. The evening peak is from 16:00 to 19:00, so many people working in London may not actually travel home until off-peak fares apply. If this happens 3 times in a week, then the calculation changes somewhat:

Year  Travelcard cost     Less 7 peak, 3 off-peak tube fares     Bus fare cost   No. bus fares to break even
2012        34.80               34.80 – (7*3.10 + 3*2.60) = 5.30              1.40                     5.30/1.40 = 3.79
2018        41.55               41.55 – (7*3.49 + 3*2.93) = 8.33              1.58                     8.33/1.58 = 5.28

By 2018 this commuter will need to use the Travelcard on more than one bus each work-day (or for leisure journeys) to justify the expenditure.

Personally I feel the Travelcard should be a better deal. In London, it seems, regular tube users are likely to pay as much per journey as occasional travellers. And it seems unfair for commuters to have a dilemma as to whether to by a season ticket or not – I haven’t even discussed the effect of Bank Holidays, leave, sick-days and occasional home-working. This is the opposite of the case for main-line rail commuters who get a tremendous deal compared to the occasional traveller.

From TfL’s point of view inflating the cost of Travelcards relative to pay as you go (PAYG) fares may also not make sense in the long-run. The result may be that more of us in suburban London stop buying Travelcards and instead cut out as many bus and tube journeys as possible. As I said yesterday, “maybe it hasn’t occurred to TfL that people might consume less of their product when they put the prices up”.

September 15, 2011

Off the Buses

Boris has announced the 2012 London Transport fare increases already. Do we always get an announcement at this time of year? Or is our leader trying to get the bad news out of the way as long as possible before the mayoral election in May 2012? I note that the last time I visited this topic was in January this year when the last fare rises actually came into effect. With a bit of luck there’ll be a double whammy with negative stories now and in January 2012.

Let’s get the ball rolling with a negative story, then.

The BBC provides a link to the documents issued by the mayor. I only looked at the first one (pdf), which seems to tell me everything I need to know.

It turns out that TfL has a Business Plan based on fare rises of RPI+2%. News to me, most likely totally unjustifiable, but certainly worthy of discussion.

First, are we to believe that TfL’s costs rise faster than general inflation? This seems unlikely, though we do know that many of their employees are extraordinarily privileged to the extent that they apparently deserve a bonus just for doing their job during the Olympics. A lot of people will be working then, and the vast majority will be paid their normal salary, and would expect nothing more. I don’t support the present government, but I was rather hoping they might look at strike law with a view to stopping Londoners being continually held to ransom.

Second, on the customer side, how is it possible to bear continual above inflation rises in transport costs? I’m thinking of low-paid workers travelling into central London. The cost of a weekly Travelcard (tube and bus) season in 2012 will be £34.80 to zone 3, £42.60 to zone 4, after rises of 8.1% in each case. That’s about £1 per hour of work! Surely the minimum wage for central London needs to be higher than elsewhere to compensate? Assuming your pay rises roughly in line with inflation (which is doing well these days), then, if you have to spend more on transport, you have to spend less on something else. That is unsustainable. TfL is not like national rail, which, as the Transport Secretary pointed out this week, is now a service for the wealthy. It is simply not realistic for TfL to increase its prices by more than RPI for a long period of time, unless the lowest wages are increasing by at least the same rate.

So why has TfL adopted the RPI+2% formula? Maybe the document I downloaded doesn’t tell me everything I need to know after all. There seem to be a lot of TfL Business Plans, but the 2009 one for 2009/10 to 2017/18 tells us what we need to know:

“…fares in January 2011 and in subsequent years are now assumed to rise at RPI plus two per cent.”

So it is indefinite. And the purpose is clearly to increase the proportion of operating costs covered by fares and therefore reduce what TfL term “Net operating expenditure”:

Excerpt from TfL Business Plan 2009/10 - 2017/18

Let’s just note in passing that the congestion charge is going to raise less in 2017/18 than 2009/10!

Bizarrely, TfL don’t state what the figures in the table refer to. Presumably they’re 2009 £s (i.e. adjusted for inflation). Assuming that is the case, TfL assumes a steady growth (several % p.a. varying erratically) in passenger numbers as well as a 2% annual increase in the fares. They say:

“As the economy recovers from recession, it is projected that demand will return to current levels by 2012 and then continue to grow strongly as London’s employment and population increase, with demand reaching record levels by the end of the Plan.”

This is a fairly heroic assumption, as it seems to assume a very low elasticity of demand – maybe it hasn’t occurred to TfL that people might consume less of their product when they put the prices up. I’ll return to this point in due course.

TfL’s Business Plan suggests they expect costs to also rise by several % p.a. more than inflation, and also erratically, with a bigger increase in 2012/13 presumably to reflect the need to bribe the staff not to disrupt the Olympics, and in 2017/18, perhaps because Crossrail comes onstream (though there is no concomitant increase in fare revenue).

So in answer to my earlier questions, it seems that unlike every other field of economic activity, running London Transport becomes less and less efficient with time. And low-paid London commuters are expected to pay an ever-increasing proportion of their income on transport.

It seems to make sense that the fare-payer should cover the cost of the service, but let’s make a few observations:

1. Unlike many others, the London transport market is not segmented, so that those who can pay more do (compare walk-on national rail or air fares with advance tickets). I’m not saying I’m a fan of dramatic market segmentation. It creates its own problems, such as making urgent travel punitively expensive for everyone. But in an unequal society, it does allow some access to services for the less well off. Obviously it’d be better to have greater income equality in London, but until that happy day, subsidising fares helps alleviate the problem.

2. The fare-payer is not the only beneficiary of the London transport network. Just as, in the ’80s and ’90s, out of town superstores and malls benefited from the motorway network, such as London’s M25, (and generally improved roads), so the new millennium has seen similar developments – notably London’s twin east and west Westfields (or perhaps the new one should be an Eastfield?) – piggybacking on the city’s public transport network. Maybe these businesses should chip in and subsidise fares from the taxes they and their customers pay.

3. Just as for customers, businesses benefit from the availability of employees. They don’t pay a higher minimum wage even for staff having to travel into the centre of London. Maybe they should, but in the meantime it doesn’t seem entirely unfair for businesses and higher paid employees to subsidise the fares of the low-paid through the tax system. £1 travel cost for each hour of work is a lot for those earning little more than the minimum wage of £6/hour.

4. Today’s fares shouldn’t subsidise investment. That should be paid for by future fares, i.e. the beneficiaries of the investment. And in fact, the goal in TfL’s Business Plan is not apparently to increase fares to pay for more investment. So when Boris mentions investment in the same bluster as higher fares he’s actually being misleading and trying to deflect criticism.

And on top of this, there’s an anomaly in the pricing scheme – this is what really got my goat and prompted me to delve into the mire of transport fares once again:

“Travelcard season prices increase by 8% overall because of the link with National Rail fares which, as approved by the Secretary of State for Transport, are to rise by 8% (RPI+3%).”

What tosh.

Fares other than Travelcards are going to increase by RPI+2% (7% this year), but Travelcards are going to increase by RPI+3%, because you might get the train.

Do they think we’re stupid?

The price for a mainline train within London is the same as the price for the same journey by tube. I can go to Ealing Broadway and get a train to Paddington or I could get the tube there. I’d touch in and touch out with my Oyster card the same either way.

The daily limit applies just the same whether I use tubes and buses or tubes, trains and buses.

No, increasing the weekly limit faster than other fares (and remember this won’t happen just this year, but indefinitely until the policy changes) affects certain people disproportionately. The sort of people most affected are those who use the system most, that is, those dependent on it most likely to get to work, that is, those with least choice.

I’m in zone 3. If you need to get a bus and tube to and from work – and tube stations are thin on the ground out here, so often a long walk – then you’re going to need a weekly Travelcard (£32.20 in 2011; £34.80 in 2012), given that 10 peak pay as you go (PAYG) zone 1-3 tube journeys alone cost £29 in 2011 and £31 in 2012.

Of course, the tragic thing about all this is that many Londoners get the bus all the way into the centre to save a few pounds at the expense of perhaps an hour a day. But even they’re being screwed. The cost of a 7 day bus and tram pass is rising by 7.3% from £17.80 in 2011 to £19.10 in 2012. I can understand why the individual bus fare is increasing by 7.7% – that’s to keep a round number (£1.40 in 2012 after £1.30 in 2011). But £19.00 for the weekly pass would have been a 6.7% increase. Why not stop there? Gratuitous.

As far as I can see, the main beneficiaries of the fare changes for 2012 are off-peak occasional tube travellers for whom the zone 1-2 fare rises by only 5.3% (£1.90 to £2 – OK a nice round figure) and the zone 1-4 fares by a mere 4% (£2.50 to £2.60). For the last, £2.70 would only have represented an 8% increase. It seems fairer somehow to impact what is most likely discretionary travel a little more and that for people trying to make ends meet a little less.

What else could be done to help the low-paid? Besides fair pay, that is.

Well, here’s another curious anomaly. “Peak” in regard to the daily limit means 4:30-9:30am. That is, if you travel between those hours the daily cap will be the peak rate (£10.80 in 2012, rather than the off-peak £7.80). But if you don’t reach the daily limit and just pay as you go, the peak is 6:30-9:30am and 4-7pm (16:00-19:00). Odd. Why not give people more of an incentive to travel before 6:30am, when presumably there is spare capacity? Why not make the peak daily limit apply only if you travel between 6:30 and 9:30am? Wouldn’t this be sensible demand-management? It would help at least some of those who currently spend more than the off-peak daily limit because they take a bus and tube to work (e.g. in zone 3 in 2012 a pre 6:30am tube fare, a peak return fare and two bus fares would come to £2.60 + £3.10 + 2x£1.40 = £8.50, above the off-peak cap of £7.80 but below the £10.80 peak cap).

The case I’m most interested in is my own, of course. It’s the borderline case, where I may as well walk to and from the tube station rather than catch the 297 (or infrequent E10). If the service were more frequent I might take the 297 to Ealing Broadway. As it is, I never do, because I don’t know how long I’ll have to wait, at least until I get to the stop, when there may be a few clues. When I come out of the station, though, I can sometimes see the bus waiting, or at least a queue of people. I’d take it more often if they actually bothered to display a departure time. But sometimes it comes down to a cost consideration. Basically, I’ll rarely pay the full fare. I might take the bus, though, if I reckon I’ll hit the daily limit.

I note that for 2012 the daily limits for zones 1-3 are increasing by more than the relevant tube fares. The peak daily limit is going up from £10.00 to £10.80 (8%) whereas the peak tube fare is increasing only from £2.90 to £3.10 (6.9%). And off-peak, the daily limit is going up from £7.30 to £7.80 (6.8%) whereas the tube fare is increasing only from £2.50 to £2.60 (4%).

So, in 2011, an off-peak return tube journey to the centre, and a journey within zone 1 (£1.90) came to £6.90, leaving 40p of the daily limit to be taken up by a bus fare, but the same itinerary in 2012 would come to £7.20 before the bus, which effectively costs me 60p. OK, it’s a 50% price increase but I expect I’ll still hop on a 297 at Ealing Broadway station if passengers are boarding!

Nevertheless, if TfL persists in increasing weekly Travelcard prices by more than other fares, there will be people who switch to pay as you go, and walk to tube stations rather than take the bus. Maybe this is all very healthy, but it seems a strange policy. It would make more sense to me to raise all TfL prices by exactly the same percentage and charge – now that it’s all electronic with Oyster – to the nearest penny if necessary.

February 16, 2011

Quick, FIT Farmers!

I once asked a careers adviser about the possibilities of becoming a journalist. I was told it was a difficult profession to get into. Clearly the reasons for that have nothing to do with competence to actually do the job.

Following my post back in October pointing out that the feed-in tariff (FIT) subsidy for large installations is so generous that there’s no longer an incentive to use sunlight to grow food, or, as the Guardian put it on Monday 7th Feb, “[a]fter a Guardian report on Sunday” – that would be 6th Feb – DECC have decided to bring forward their review of the scheme.

So anyone planning to take advantage of the current tariffs better move fast. But make sure you understand because the papers seem to labour under one or two misconceptions.

For example, yesterday the Independent wrote that:

“…including projects of more than 50 megawatts (MW) in the review will catch out community solar schemes from schools, hospitals and housing associations, as well as truly large-scale farm installations.”

That should have read 50kW, and soon did after the error was pointed out. The point is that the schemes being subsidised by FITs will generate relatively piffling amounts of energy.

As the predictable farce continues, it’s becoming less and less clear to me what the rationale for the FIT scheme actually is, at least for solar PV. The fundamental problem is that government made the a priori assumption that microgeneration is economically efficient. Wrong, wrong, wrong. FIT farms are much more efficient than sticking solar panels on people’s roofs. As ever, scale economies are critical.

So we keep hearing statements accusing farmers of taking up a subsidy which was “intended for” even smaller-scale producers (I say “even smaller-scale” because what’s really needed is industrial-scale production of solar electricity in the Sahara). It’s a no-brainer what DECC will actually do: they’ll reduce the FIT rates for larger installations and/or reduce the size limit for which FITs apply and/or allocate different pots of subsidy for different size schemes – fortunately Osborne has capped the amount that can be committed (from our future electricity bills). Basically they’ll defend the micro micro-generators. But why?

If the future isn’t microgeneration, why would we want to subsidise it? Why not do the reverse of what the government is about to do and allow relatively large-scale solar PV installations to use the subsidy? Surely that would achieve the objective of building up scale economies (that term again – what mental contortions to recognise one form of scale economy and not another in the same initiative!) for the supply of solar panels in the UK?

There’s misconception about another aspect of the scheme, too, extending even to a picture caption serving as the subtitle to a Guardian article supposedly answering all your solar PV FIT questions. They write that:

“Homeowners can make money from their solar panels by selling the energy produced to electricity companies”

More wrongness, journos!

You make most of the money – 41.3p/kWh – by generating the electricity. That’s what you’ll get a meter for on day one.

In fact, the last thing you want to do is sell it to your electricity company! For that you only get an additional 3p/kWh. Last time I looked I was paying around 12p/kWh for electricity and 5p/kWh for gas. So what you want to do is use the solar PV generated electricity yourself rather than buying electricity or even gas. Arrange to use the electricity during the day (perhaps by using storage heaters) or even store it in a bank of batteries to cook in the evening.

There’s a wrinkle that favours the home microgenerator even more. Until smart meters roll out it will be assumed that you export half the electricity you produce and use the rest. So anything over half you use is totally free!

As I expected was inevitable all along, we are now well into the realm of perverse incentives. If you’re a home microgenerator the opportunity cost of your own electricity is only at most 3p/kWh. So you might be able to afford to use it up when you wouldn’t have previously spent the money buying electricity. Air-conditioning springs to mind.

It seems the 3p/kWh export tariff has been set at the price electricity distributors normally pay suppliers. But that seems a bit daft, since they (or we) are subsidising generation of the same electricity. Clearly, the export tariff should be approximately the same as the consumer price for electricity and the generation tariff somewhat lower than it is now to compensate.

It might be worth pointing out that with the scheme as it is, electricity consumers should favour larger-scale solar PV installations – FIT farms – since they have no choice but to export their electricity at 3p/kWh (on top of a lower generation tariff of as low as 29.3p/kWh compared to the domestic tariff of 41.3p/kWh).

It’s obvious why home microgenerators would support FITs. It’s not so obvious why electricity consumers would be so enthusiastic. From the detached point of view of decarbonising the UK’s electricity supply, it seems to me there’s a problem looming a decade or two down the line. Current policies should deliver the 15% renewables by 2020 the UK is commited to, though not much will be solar PV, by the way – offshore wind will dominate. But sometime after 2020 we’ll need to start getting domestic consumers to switch from gas central heating and cooking to electricity. At present, the gas price is a fraction of that for electricity. The gap can only widen, especially as we add expensive renewables to the supply. Better start thinking now, I suggest, how we’re going to manage – politically – to tax domestic gas at around the level we do petrol.

And best to think too about how to keep the domestic electricity price down. Generous FITs are probably not the way. And a much larger proportion of onshore wind at about half the cost of offshore might be a good idea as well.

January 20, 2010

Parking Paralysis (and Housing Horror)

As we head towards what promises to be a fascinating General Election, the absurd first past the post system has ensured the parties are united in their zeal to pander to Middle England. And Middle England, it seems, is consumed with localist fervour.

What is localism, anyway?

The politicians would have you believe that the first stop on the road to true democracy is to “empower communities”. That is, they assert the moral right of the current residents of a given area to make a broad range of decisions without reference to the general interest.

The idea that the primary unit of a complex modern society is a “community” of people living near one another is, of course, absurd. In fact, our personal networks – including families – are, in general, becoming more and more geographically dispersed. We have little in common with most of our neighbours, other than the area where we live.

Harking back to an outmoded idea of the community masks what is really going on. What’s really happening is that the political process is becoming more and more skewed towards vested interests and against the general interest.

Take housing, for example. This morning I heard the Housing Minister, John Healey, on the Today programme, promising to clamp down on “garden-grabbing”.

Let’s put to one side the fact that John Prescott was right: we need to increase housing density. Labour has caved in on this principle as the Tories have gradually captured local government. But below a certain threshold of population density local shops are not economically viable; nor is public transport. Pretty soon everyone’s driving to Tesco’s. And the same nauseating nimbys who prevented “overdevelopment” are complaining about the loss of local shops and whinging about “Tesco towns”.

I consider it absolutely ridiculous that I’m in London Transport Zone 3, but 10 minutes walk from a pint of milk and a newspaper. If there were a few more flats nearby and perhaps fewer large private gardens, maybe there’d be enough people in walking distance to sustain a local corner-shop. If it could get planning permission.

Let’s ignore the “community” narrative and instead consider what’s really happening with the “clamp-down” on “garden-grabbing”. What John Healey is really doing is strengthening the rights of neighbours over the owners or prospective owners of property – despite the fact that the size of gardens has marginal impact on neighbouring properties, or, for that matter, their value. If they reduce the size of a garden, those bogey-men, the developers, are not simply being bloody-minded. The market is telling them that the land has less value as a garden than as building. If the opposite was the case they’d increase the size of gardens.

Obviously, the reason why “building” is more highly valued than “garden” could have something to do with the lack of available housing in many parts of the UK. But clearly our leaders don’t see this isn’t a good enough basis for a decision. The visceral feelings of neighbours are obviously far more important.

A few weeks ago Secretary of State John Denham rejected plans for a development near Ealing Broadway station. He acknowledged that the proposed “scheme would comply with some specific development plan policies relating to the regeneration of Ealing Town Centre and would bring many benefits to the area”, including 567 homes, but judged that all this value was outweighed by his subjective judgement (in response to local concerns) that “the bulk, massing and certain aspects of the design of the scheme would be inappropriate in its surroundings. It would fail to preserve or enhance the character and appearance of the Town Centre conservation area and the setting of the Haven Green conservation area, as well as harming the setting of the Grade II* listed Church of Christ the Saviour.” One person’s fears about their “visual amenity” (an irritating phrase repeated ad nauseam in planning documents) trumps another’s need for somewhere to live.

Look, Haven Green is a mess. It’s simply not that pleasant a place. It could conceivably be improved by removing the buses which stop and indeed park (for driver breaks, I gather) on the diagonal road across the Green. A recent Ealing Council document (pdf) noted that: “A major consideration, as part of both the Crossrail and Arcadia redevelopment proposals, is the provision of better interchange with local bus services.” But Arcadia is not going ahead, and, if I understand the document correctly, Crossrail has no budget to pay for a proper bus station.

The planning process is bad enough, but nowhere is localism more evident than in the battle for control of scarce road space.

Ealing Council, to my horror, is also consulting on a dreaded CPZ (controlled parking zone), which would affect me.

OK, the proliferation of CPZs can be largely explained in terms of local government bureaucrat empire-building, but there is clearly at least enough tacit public approval to allow them to get away with it. Let’s therefore consider the CPZ in my novel terms of the “local” (or “vested”) interest and the “general” interest.

Before a CPZ is implemented in a given street, everyone has an equal right to park there. After its implementation, car-owning residents generally have absolute priority. In fact, often the schemes are implemented with the shocking inefficiency that non-residents can’t even use the space when it is unoccupied! (Schemes variously allocate a few metered bays or, better, allow metered parking albeit for limited periods and at limited times in residents’ bays).

So, in approving a CPZ, residents in effect extend their property a couple of metres into the road in one fell swoop!

Do they pay a fair price for this asset, though?

Of course they don’t.

Permits for residents’ parking on public roads are often less than £100 per year, and rarely more than a few £100s. The market value of such parking – determined by the rates in the few metered bays typically provided or in nearby car-parks – is usually at least several pounds a day – £1000s, not £100s a year.

It’s not just outsiders who, in effect, subsidise permit-holders. Residents who don’t run cars are massively inconvenienced, as is everyone when they have visitors, or use local services. Estate agents, for example, have problems parking when they quite legitimately want to show properties to prospective purchasers or tenants.

What CPZ schemes fail to take account of is that residents’ cars are part of the problem, and not the only injured party. Personally, it seems to me that there would be more social utility in reserving parking places for estate agents than for residents who just want to leave half a tonne of steel and moulded plastic outside their house for 6 1/2 days a week.

If we’re going to have CPZ schemes, then, let’s charge a market rate for the parking space – upwards of £1000 a year (and allow the option of paying a daily rate for those residents who park their car elsewhere most of the time). Then we’d reduce car ownership, spaces could be allocated to car clubs and for visitors and our parking problems would be much reduced.

What Ealing really wants, though, is not an ever-growing CPZ area. What’s happened is they’ve tried to solve the problem of commuters parking near Ealing Broadway and West Ealing stations. Entirely predictably, the small CPZs implemented have just moved the problem. Now they’re consulting on more CPZs. Nice work, if you’re in the CPZ implementation business.

Is there another policy that might make more sense than the inefficiency of selling the public parking space asset at a discounted rate to residents who think they own “their” road? It is entirely legitimate to discourage car rather than bus or shoe-leather use by commuters. Why not, therefore, consider a congestion-charge scheme for non-residents coming into the centre of Ealing? One might hope that some of the London congestion-charge infrastructure could be fairly cheaply deployed just in the centre of Ealing. I’d suggest vehicles entering and leaving are monitored and the software programmed to charge only for those non-residents who stay in the area more than, say, an hour, since the objective in this case is not to penalise through-traffic but relieve pressure on on-street parking.

Perhaps it will take PR to slow the tide of localism. Certainly though, until the political process weighs the general interest more carefully against vested interests, our society will continue to be held back by dysfunctional and misguided decisions.

November 11, 2009

Is Lord Turner Pissing in the Wind?

Filed under: Economics, Energy policy, Global warming, Inefficiencies — Tim Joslin @ 8:39 pm

I went to the Campaign against Climate Change (CCC) conference on Saturday. My impression is that everything is turning a bit red-green – there was a heavy presence of the alphabet soup of revolutionary socialist groups. Perhaps the CCC event is typical of what’s happening to the climate change movement.

The headline on the front page of the Guardian today was: “£15,000 the cost of a green home – watchdog“.

The watchdog in question is the Climate Change Committee (henceforth this, not the Campaign against Climate Change will be known as the CCC!), headed by Lord Turner. It seems to me that the Committee’s brief should be to advise the best things to do, not everything that comes into their heads. And I should imagine most people would understand cost-effective to be one of the main criteria determining what is “best”.

Have they run the numbers?

Maybe we should before we spend £300bn (20 million houses at £15,000 each).

David MacKay reports that he was able to reduce his gas consumption by 27kWh/d, a staggering 67%. David was lucky in that he had cavity walls that are more cheaply insulated than the solid variety. I expect he was also highly motivated to maximise savings (and his savings include some thermostat manipulation), and not everyone would achieve such a good result. Let’s assume, though, that David’s 27kWh/d is the sort of energy saving we get for spending £15,000 on the average house.

There are about 20 million houses in the UK and 60 million people. The cost to save 27kWh/d/p is therefore around £5,000 per person by home improvements, or £5,000/27 = £185 per kWh/d/p.

How does this compare with other options?

MacKay lists costs of energy generation options in his Table 28.3. He doesn’t give the cost per kWh/d/p, but we can easily work it out:
– onshore wind provides 4.2kWh/d/p for £450/p, so £450/4.2 = ~£107 per kWh/d/p.
– offshore wind provides 3.5kWh/d/p for £650/p, so £650/3.5 = ~£188 per kWh/d/p.
I mention wind in particular because there will be a good correlation between wind availability and the need for domestic heating, since the wind cools the houses down. (Many homes have gas central-heating, of course. Electricity will displace gas burned in power-stations if it is not used to heat homes directly).

It’s clearly significantly better to build onshore wind than insulate homes at £15,000 a pop. It’s a toss-up between offshore wind and insulation.

Installing heat-pumps would, according to MacKay, cost £1000/person (implying £3,000/house) but save 12kWh/d/p, at ~£83 per kWh/d/p. People should definitely buy these. But Lord Turner doesn’t mention heat-pumps at all:

“Britain was running out of ‘easy things’ to do in the home[, Turner explained]. ‘After home insulation and more efficient boilers, we now need more intrusive things – double glazing, cavity wall insulation, solid wall insulation.’ ”

And I hate to say it, but according to David MacKay, nuclear power is cheaper still at £1000/person for 16kWh/d/p, i.e. £62.50 per kWh/d/p.

But. There’s always a but. This one is that I simply don’t believe you get as much saving for every £ of that £15,000. By the 80:20 rule, most of the energy will be saved by the first 20%. Here’s what I reckon: it’s a better deal to spend considerably less than £15,000 on each home – let’s say £3,000 – and instead invest in as much wind energy as we can possibly produce.

But. There’s always another but. The cost should be paid by home-owners. I think what I object to most is the statist approach. Apparently:

“The CCC believes that the cost of the scheme would be paid for by a combination of government subsidy and higher electricity bills.”

It’s not clear who pays through their electricity bills. Maybe the idea is you take out what is in effect a loan. But home-owners are generally fairly credit-worthy, so should take out a bank loan (or remortgage), if necessary, to make cost-effective home improvements. What’s proposed, though, is that at least some of the cost of the home improvements is to be spread amongst around – in particular, some, it appears, is to be borne by the taxpayer. This is just wrong. Why should those who don’t qualify for the subsidy pay to increase the value of other peoples’ homes? In ways that might not even be cost-effective.

In fact, if home-owners don’t take financial responsibility for the exercise it will certainly not be cost-effective. Consumption needs to be monitored to ensure the expected savings are made. And what’s more, home-owners need to manage their houses to ensure that energy consumption doesn’t bounce back up, that is, not simply turn the heating up or keep a few more windows open.

Simply handing out money is a good way of wasting most of it.

Instead, we should let the cost of energy be what it’s going to be, using the most cost-effective forms of low-carbon energy.

And then, sure, we should provide advice to home-owners – public information ads detailing how they might save money, and all that.

But people should then make their own informed decisions as to whether to save money or not. If necessary, the price of carbon should be allowed to rise until enough people do save energy or switch to renewable forms.

October 5, 2009

Screwed by Virgin

Filed under: Business practices, Consumer gripes, Economics, Inefficiencies, Regulation — Tim Joslin @ 5:15 pm

They say moving house is one of life’s more stressful experiences. It’d be a helluva lot less stressful if it was not for the numerous bureaucracies you have to deal with. Telecomms providers must be among the worst.

A final straw has been added and I have to let off steam.

My fun and games with Virgin Media started before I even moved in. I had the affrontery to attempt to close the account I’d had for 5 years at my previous address. I thought I’d take up an introductory offer when I moved. Maybe I’d remain faithful to Virgin, maybe not. I’d dared to think I might have a choice as to who delivered my bits and bytes. Well, as someone famously said, in a democracy you may be free once every 5 years when you cast your vote, but as a Virgin Media customer I discovered I was even less free than that.

My mistake was that I had changed the package I received 10 months before I moved. I’d been using phone, TV and internet, but wanted to restore the 24 hour news channels I’d given up some time before. I’d understood it was part of the Virgin offering that you could change your TV channels from time to time. Virgin’s twist is that they’ve invented various discounts. Even though the only change to the service was to add some channels and the bill increased by a few pounds each month, it seems I moved from “Ultimate Double 2”, to “Ultimate Triple”. Apparently, just because I’d moved from one bundle “offer” to another, this required a “new” 12 month contract. I have to take Virgin’s word that such a thing exists because I don’t have it on file. I found I was locked in to Virgin and had no real choice but to arrange to use Virgin at my new address. And guess what? I’m now locked-in for another 12 months.

It’s not something most consumers spend a lot of time thinking about but I’d be very surprised if the management of service-providers don’t employ a few MBAs to devise subtle ways to lock in their customers. A high degree of lock-in – that is, high switching costs for consumers – is actually in the interest of ALL incumbents in an industry. At the expense of consumers and new entrant providers. Think about it. Or just trust me, I’m an MBA!

Don’t get me wrong. It’s logical for a provider to require a period of commitment by the customer to cover up-front costs – think mobile phone contracts, or in this case the cost of sending an engineer to carry out the cable installation. But I hardly think a call to change the TV package constitutes a major up-front cost.

Theory would suggest that service will in general be poorer, the higher customers’ switching costs. I’ll leave the reader to judge whether such a conclusion is supported by my experience with Virgin. Here are a few of the straws that have been heaped on my back since I moved:

  • Letters about my new contract were sent to the new address where an installation had been arranged in 2 or 3 weeks time, not the old one where I was actually living. One was returned to sender since other tenants didn’t recognise the name!
  • Even more irritating was that the cardboard box Virgin sent for the return of my old set-top box – which lived at my old address, of course – was also sent to my new address. Duh. So, rather than post it back, I had to pack and transport Virgin’s set-top box. And take time as soon as I’d moved in to find where the Post Office keeps undelivered packages around here… – Still, on the plus side, Virgin’s engineer did turn up for the installation…
  • …but left before the internet was working. He’d rung up, found there was a 20 minute delay before some gobbledegooky thing would happen (even though this appointment was made several weeks before) and gone to his next job. He did leave a mobile phone number, though. So when Virgin’s software asked me to ring up to “register the modem” (what does that mean?) yet their help-line couldn’t, um, help me, I rang him. He’d done his job, he said. Surreal. I went out for the rest of the day, rather unhappy, of course. When I came in, the modem had clearly managed to “register” itself and soon I was happily surfing away…
  • …until last Thursday. No internet from around 5pm until sometime between 12 and 1pm on Friday. Call me a ninny, but I consider that a significant outage. My direct costs were £30.18 and my indirect costs £29.99. £30 because I’d received an email including a half-price offer for something I wanted to buy anyway. By the time I tried to buy, it was sold out. 18p because I’d been in the middle of registering a temporary Tesco club-card, which was still next to my PC when I was next in Tescos. £29.99 because I went out and bought a 3 mobile broadband USB device and £10 credit for next time this happens.

… …
I’ve tried getting compensation from Virgin before, and it’s not worth the effort. As I recollect, they will only pay from when you ring to report the problem – which you don’t bother to do when you hear the recorded message about the problems in your area – and only pro rata, i.e. they refund one day’s broadband charge per day of loss of service. This is pathetic. You’re paying for continuous, not patchy service. Consumers on their own are isolated and not in a position to change supplier behaviour. Government should represent the mass of consumers and impose sensible terms. In the case of broadband supply, outages of more than 12 hours should trigger automatic refund of an entire month’s charge; more than an hour or an hour cumulatively over a month would cost the supplier at least a couple of day’s charges. Of course, such outages would become very rare – this is called setting the right incentive. (Did Virgin work through the night last Thursday to resolve the problem affecting my service as quickly as possible? I somehow doubt it). If broadband internet is so important that we need a tax on landlines to subsidise its supply, then it’s important enough for companies to be compelled to provide a reliable service. And for customers to be compensated for something approaching the costs of non-performance by suppliers.
… …

  • And we haven’t even reached the final straw yet. I’d opted (at my old address) for Virgin’s “eBill” service. This might be convenient if the bill was actually attached to an email. It’s rather irritating that you just receive an email telling you to log on to Virgin’s site to find your bill. Still, you pay £1.25 less (surely rather more than the bill costs to produce – we allow Virgin to create an incentive for us to do the right thing and save paper, whilst failing to give them sufficient incentive to provide a reliable service). OK, £1.25 won’t even buy a skinny latte these days, but it’s still an unnecessary expense. You’ve probably guessed by now that a few days ago I received a paper bill, complete with £1.25 “Paper Bill Charge” at my new address…
  • Nope, there are more straws. Clearly I’d need to re-register for “eBilling”. But first, I thought I’d check my old bills. Doh! Of course, Virgin have given me a new account and deleted the old one (or at least made it inaccessible via my email address and the PIN provided). So the closing bill for my old account – only recently paid by Direct Debit – is inaccessible. How do I know I’ve paid the right amount? E-billing is all very well. It’s the future. It’s potentially efficient. But companies need to be compelled to keep data available. Again, government needs to step in and set some rules. I hate to say it but maybe it’s not really in suppliers interests to have consumers checking their old bills. Maybe when they’re not thinking about how to keep you locked in, some of those MBAs are working out how to keep you in the dark about charges…

March 30, 2009

Cambridge Traffic Planning, or, The Definition of “Incoherent”

Filed under: Cambridge, Economics, Inefficiencies, Transport — Tim Joslin @ 6:26 pm

I recently commented on and suggested solutions to the traffic problems in my little corner of Cambridge. I was moved last week to attend a public meeting on the issue. I’ll report on that shortly.

First, though, I wanted to give a brief update on one area of lunacy I’ve previously mentioned, namely the taxi-rank in St Andrew’s Street. I can now report that absolutely nothing has changed. Rules clearly don’t apply to the St Andrew’s Street taxi-drivers. Most of the times I’ve looked, the taxis are “over-ranking” by as many as 6 vehicles, forcing buses leaving stops behind the rank to pull out further than necessary into a narrow road, where there are cyclists and pedestrians all over the place.

Worse, behind the taxi-rank there is a natural crossing-point, between Lion’s Yard and the city centre shops and a pedestrian walkway to the Drummer Street bus station and the Grafton Centre. Because a line of taxis now crosses this point, people have to do exactly what you’re taught not to in primary school, that is, cross the road between parked cars. This is dangerous. Especially if you’re in a wheelchair. And that’s what I saw this week – a woman in a wheelchair trying to see over a line of taxis parked on double-yellow lines. On this occasion she didn’t end up under a double-decker bus, but one did come thundering past as she was trying to cross.

But salvation is at hand! A Cambridgeshire Transport Commission has been established. Public meetings are being held. I went to the Cambridge Guildhall on Thursday 19th March, when Cambridge City Council, South Cambridgeshire District Council and the Cambridge Preservation Society gave evidence. I’m not going to give a blow-by-blow account of the meeting, partly because Richard Taylor has already done so (I don’t know Richard, I just came across his blog last week, somehow).

But I’m also restricting myself to a few observations because I rapidly developed a severe headache, not entirely unrelated to what I was listening to. I couldn’t help thinking that, as ever, our decision-making capability is hopelessly compromised by a failure to recognise those two great contradictions in terms: local democracy and the rural economy. We fail to realise that the more local the influence on decision-making, the less democratic it is. And the more economic activity in an area the less rural it is – you can’t have both, you have to make decisions.

So here are my considered reflections on the politicial process to resolve the chronic traffic problems in Cambridge:

1. What public debate?
About the first thing I discovered at the meeting was that the deadline for responses from the public had passed on 13th March. A questionnaire has even been completed, already (see the Transport Commission website).

Interesting. I’d only just heard about the public meetings, yet I missed out on having my say. I know these “public consultation” processes always work like this, but wouldn’t it be better to have some discussion to help people formulate their ideas and then ask them about their views?

By conducting the questionnaire and asking for submissions as a first step the Commission has ensured that it has only gathered data based on uninformed views. OK, the Commission is tasked with a problem that has been around for years, but by taking evidence only before the public meetings, it minimises the amount of fresh thinking it can tap into. And ensured that most influence is wielded by insiders in the political process who are most aware of the timetable. Engagement with members of the general public interested in just this one issue has become a very one-way process.

If I were to make a submission, I’d rather not look totally ignorant, so would have liked to have heard the City Council’s and others’ views before putting finger to keyboard. Tricky when the submission deadline was 13th March and the public meeting 19th March.

2. Cambridge City Council priorities
I say I would have liked to hear Cambridge City Council’s views, but when I did I was shocked. Truly shocked.

Get this: the top priority of Cambridge City Council is climate change, expressed as “reducing carbon emissions”. Now, if I was to decide who should get the contract to solve climate change I wouldn’t award it to Cambridge City Council. It’s the wrong level of government. Are my local councillors going to invent the electric car? Build a Supergrid to bring to the UK renewable electricity generated from Atlantic wind and Sahara sunlight?

So one minute we’re talking about traffic congestion and the next about emission targets. Some exchanges were surreal. Sian Reid, the Transport person on the City Council, tried to convince the head of the Commission, Sir Brian Briscoe, that transport plans should take account of the effect on carbon emissions in the whole region, not just Cambridge City. She was right. It’s daft for Sir Brian to tell everyone just to worry about their own little bit. That is the trap of local democracy, and we’d never get anywhere.

Or rather, Sian Reid would have been right, if we were talking about carbon emissions. But we’re not. We can only include such a discussion in a limited way, as otherwise we have to make sweeping unjustified assumptions. We would not, for example, propose to create a railway running coal-fired steam-trains. But to equate the level of traffic in the city with carbon emissions is absurd. What if people start using electric cars?

My head started hurting at the meeting and it’s hurting again now when I read on Richard Taylor’s blog that:

“The hypothetical question of why not close the city centre car parks to discourage people driving in was raised. It was pointed out this could be ‘done tomorrow’. [Good idea!] Cllr Reid who is responsible for car parks defended them pointing to the new emission based car park charging system which she said would be accepted as people were used to paying their vehicle excise duty on the basis of emissions.”

What on Earth is Sian Reid on about?

The amount of traffic coming into the centre of Cambridge already is a massive problem. And it doesn’t scale. The roads are clogged and we’re expecting more people to want to travel in the region.

Forget carbon emissions. In fact, strike this from the Council’s objectives altogether. Just sort out the transport system.

3. Who’s in charge?
Ah, but we can’t “just sort out the transport system”, because we haven’t yet answered the question “who for?”.

Because we haven’t identified who the transport system is meant to serve, progress is hamstrung.

Human nature being what it is, everyone focuses on the congestion charge proposed as part of any transport improvement. Central government has apparently made the £500m for transport improvements conditional on a congestion charge.

But the purpose of the congestion charge (cc) is unclear. Here are two views:
1. The aim of the cc is to reduce the inconvenience to Cambridge City residents from outsiders coming into the town or driving through it.
2. The aim of the cc is to reduce delays on roads in a crowded part of the county.

The first perspective implies the City Council would have “sovereignty”. They would take responsibility for the commercial success of their constituency. Accordingly, one would expect the congestion charge to cover a zone, requiring payment on entry, with those living inside exempt from payment. If high charges deter shoppers, then so be it. It might actually be better for everyone if there were fewer shops in Cambridge and more in the surrounding area.

The second perspective implies that the transport problems of Cambridge are just a subset of those affecting a larger area. The County Council has “sovereignty”. But then it has to take a broader perspective than just Cambridge. The whole idea of a single congestion charge zone makes little sense.

Instead we have a farcical situation where the County Council has appointed a Transport Commission who are consulting local councils. That was the purpose of the meeting I went to. South Cambridgeshire District Council (SCDC) were able to announce that they oppose the congestion charge. Indeed, the head of that council explained that, because the buses were so slow, his 17 year old kids had been allowed to drive to Hills Road 6th Form College in Cambridge. Unbelievable. Cambridge University undergraduates aren’t allowed to run cars, but 17 year olds can. Someone should have a word with Hills Road College.

It is lunacy for SCDC to “oppose” the congestion charge or to give them a platform to do so – this statement should have been ruled out of order. SCDC were at the meeting purely to provide a perspective on transport in the Cambridge region, not to take a position on anything. As I’ve explained, the congestion charge must either be the responsibility of Cambridge – at least the majority Lib Dems in favour – or Cambridgeshire – all parties in favour. I know this, because someone wrote to the local paper asking who he was supposed to vote for. Maybe he shouldn’t bother. Maybe he should take the time to ask himself why he thinks he knows better than everyone who’s looked into the issue properly.

SCDC residents can only influence transport in Cambridge through their County Councillors, not their local Councillors. It is ludicrous for SCDC to have a “position” on the congestion charge (unless it extrends into South Cambs of course).

Personally I think it would be far preferable if Cambridge City Council took decisions on transport in Cambridge. Because the wider constituency represented by the County Council has the final say, we are drifting towards a vision of Cambridge as there to provide a service to the surrounding area. It is turning into a giant shopping centre. It would be preferable to tweak the political system to shift the balance so that transport and other planning in Cambridge reflects the needs of residents of the city rather more and the needs of those living elsewhere in the county a little less.

4. Strategy, what strategy?
Because we haven’t decided who the transport system is for, we have no clearly defined objectives.

One might have expected the Transport Commission to start out by identifying objectives. Every project I’ve ever been involved with has started with some kind of high-level statement of requirements. But when it comes to the future of Cambridge’s transport system, we go straight to arguing about the – at this stage hypothetical – congestion charge and who would be exempt from it.

What Sir Brian and Professor Tony might more profitably have done was:
1. Identify the objectives of the exercise.
2. Validate these with the public.
3. Produce some (internally consistent) options for meeting the objectives, based on something resembling logical reasoning.
4. Consult the now better informed public again.
5. Select one of the options.

Instead we have had uninformed public comment – many saying “no congestion charge” rather than addressing a complete solution – and will no doubt end up with an incoherent strategy.

Let me suggest what some of the objectives might have been, reconciling the interests of Cambridge residents and those from the surrounding area:
1. Reduce the usage of Cambridge City Centre (inside the inner ring road) by motor vehicles.
2. Ensure inexpensive, efficient transport options exist to support the needs of an increasing population in the Greater Cambridge area.
3. Minimise delays to traffic using designated through-routes.

A strategy could then be devised to meet these objectives. This stage should be the province of professionals. It requires objective reasoning, not subjective opinion. For example, the Commission might use the concepts of “limiting factors”, “efficiency” and “incentives”.

They might conclude that cost is not the limiting factor determining whether people drive into Cambridge or not. Any congestion charge would therefore likely have to be very high to be effective. No, the limiting factor for many journeys is surely the availability of parking. So, to meet objective no. 1, reduce traffic coming into the centre of Cambridge, we could close the Grand Arcade car-park. We could convert some of the railway station car-park into cycle parking. And we could tell Hills Road 6th Form College it is not acceptable for their students to drive into Cambridge.

The limiting factor for many journeys across Cambridge is very likely the existence of routes. If we don’t allow people to take short-cuts by leaving designated through-routes, then people will have to stick to the main roads.

Another limiting factor affecting cyclists (and even pedestrians) is the available space. There are too few cycle lanes and even pavements are congested in some parts of Cambridge! To achieve a modal shift away from cars, more cycle lanes and wider pavements are required.

Once some of the limiting factors have been addressed, the Commission should start to look at the efficiency of the system.

This will likely mean far more one-way streets. It is ludicrous, for example, that buses travel both ways, not only along Regent Street, but also along Emmanuel Road into the Drummer Street bus station.

But ultimately the Commission needs to consider the geography of Cambridge, with a busy centre confined on 3 sides by the river Cam and historic buildings. The obvious solution is for the main transport interchange to be located at the railway station (perhaps with a similar arrangement at Chesterton), with a high-capacity, high-frequency shuttle service – preferably a metro train in a tunnel, an elevated monorail or even the dreaded pods – between there and the town centre. We need to be prepared to invest in such a scheme. The Commission should not rely on vested interests, such as the bus company, but on its own reasoning.

Closing car-parks, closing minor roads to through-traffic and improving the design of the system will all help, but to meet objective 3, to minimise delays, we have to look at incentives. And now, finally, we have to consider a congestion charge. But what we’re left with are the busy routes around Cambridge and elsewhere in the county. Surely, rather than a zone, the charge should be levied purely on those using particular roads that are exceeding their capacity, causing delays for everyone? For example, a charge on the inner ring road would push some through traffic onto trunk routes. If some of these roads are too busy, a lower charge could be levied on them, moving some traffic onto public transport, or to travel at less busy times.

To sell a congestion charge to the public it must be presented as precisely targeted on busy routes. People need to be very clear what they’re buying. Rather than a zone, it would be far better to charge a fee for each busy road used – Gonville Place, East Road, Newmarket Road say – with a daily cap. And any talk of carbon emissions should be taken out of the discussion. Global warming is a different issue to traffic congestion.

5. Joined up thinking
It is impossible to separate traffic policy from housing and other planning policy. The head of SCDC pointed out at the meeting that Cambridge residents are on average 400 metres from their nearest bus-stop, but that this rises to 1000 metres in South Cambs. Look, the greater the housing density, the more customers there are for public transport (and for specialist local shops and small supermarkets!). It was refreshing to read today that someone is actually spelling this out. Here’s what Centre for Cities have to say:

“All cities are different. However, denser cities can be more efficient and more sustainable. Research has shown that denser cities around the world have a lower private transport energy use per capita. Private transport energy use in Boston, for example, which has an average urban density of 12.5 persons per hectare, was 50,000 per capita in 1990; while in Hamburg it was 20,000 per capita (37.5 persons per hectare) and around 3,000 per capita in Hong Kong (300 persons per hectare).

Growing through densification rather than urban sprawl therefore has the potential to make transport in Cambridge more sustainable, as more residents are able to walk or cycle to work.” (my stress)

March 27, 2009

Supermarkets Revisited: The Locomotive, Sky, Sainsbury’s, Self-Checkout and Plastic Bags

Filed under: Cambridge, Economics, Inefficiencies, Undercover — Tim Joslin @ 9:40 am

I commented a few days ago on the Cambridge Supermarket Wars and later on my own shopping habits. Since then the battle has intensified on the Mill Road front, and a fundamental change has been made to the shopping environment!

First, the bad news. Sadly, the Locomotive on Mill Road is up for sale. The physical reminder of those karaoke nights may soon be no more.

But the good news is that a new convenience store could open on the Locomotive site.

But the other bad news is that (as usual) the politicians are meddling. According to the Cambridge Evening News report:

“…there were calls yesterday for [The Locomotive] to be retained as [a] community pub…

Cambridge city councillor Ben Bradnack, who represents the Petersfield ward in which The Locomotive lies, said: ‘We already have two convenience stores on this side of the Mill Road bridge and they must be finding it difficult anyway.

‘I am not in favour of pubs closing in principle and these stores are for the daytime economy when we really need to think about the nighttime economy.’ “

I’m as concerned as anyone about the loss of our traditional watering-holes. This is often put down to a change in our habits – we drink more at home. But why? We are such social creatures, after all. The reasons are undoubtedly complex, but what surprises me is that Sky TV’s subscription policy is so rarely mentioned as a problem for smaller pubs. We now take it for granted that live televised sport is the right accompaniment for a beer (pork scratchings out, English Premier League in). Smaller pubs tell me that they can’t afford a Sky TV subscription. Custom is drifting away to larger pubs, or, since large crammed bars are not everyone’s cup of tea, people are simply staying at home.

It should not be up to the Council to decide whether the Locomotive site should become a store or whether it should reopen under new management as a pub. At the end of the day, someone has to decide that it is worth investing their money in a business on the site. That’s the system.

And, as I’ve argued before, it is not sensible for the Council to decide how many supermarkets we need. Far better to provide people with a choice. No-one is forced to shop at the Mill Road Tesco. Nor would they be at a new convenience store on the Locomotive site.

The dangers of pretending it is possible to all agree whether or not a Tesco store should be allowed on Mill Road is well illustrated by the emotions that have now been unleashed. Apparently, a pro-Tesco campaigner has been attacked. In front of the local MP!

How local councils (I’m sure Cambridge is not unique) have drifted into the sort of planning micromanagement we now see is a story that should be told. I suspect the problem is that local government has been so emasculated over the years that elected representatives are now trying too hard to find something to justify their own existence.

And, second, the really bad news. The reason I am revisiting the food shopping topic today is that Sainsbury’s have messed with their operation. To my horror, I found yesterday that they have only gone and replaced the multi-queue tills with a self-checkout system.

Remember, as someone following a life-style I thought society was trying to encourage, that is, not running a car, I have little choice as to where I buy my groceries.

I’m especially vulnerable, because Sainsbury’s is a de facto monopoly. They’d therefore have to screw-up big-time before enough customers took their business elsewhere for them to realise they’d made mistakes.

Today was fairly quiet in Sainsbury’s, I presume because the students are away. I dread to think how long the queues will get when they return.

In principle I support the idea of self-checkout. It will eventually reduce the amount of work that has to be done by society as a whole, moving us one step closer to a utopian world of leisure. But the technology is not yet customer-ready.

I noticed yesterday that Sainsbury’s staff were already running around between customers struggling with the new check-out machines. I dread to think how long the queues will be when the students return. Especially as staff approval will be necessary whenever anyone buys alcohol. Some of the students look quite young so we’ll all have to wait while they produce their id. When I was about 12 one of my mates was in the local paper after having had his stomach pumped to remove the whisky from another friend’s father’s drinks cabinet (hey, why wasn’t I invited?). But now we seem to think we’ll keep kids off alcohol by putting the onus on shop-keepers. They can get in serious trouble if they sell liquor to minors.

Obviously Sainsbury’s need to change the system elsewhere in their store. I’ll check sometime, but I didn’t notice that they’d done anything to anticipate this problem. The “obvious” thing to do is to monitor cutsomers’ ages on entrance to the booze section of the store. This would make their wine offers near the entrance to the store rather problematic, but then they should have thought all this through before they brought the new machines in.

Similarly, the delays at the checkout caused by the need to weigh fruit and veg could easily be avoided by having this done in the fruit and veg section. As is the case in many other countries. You simply print out a label with a bar-code which is later scanned at the checkout.

But my really big issue with the automatic checkout system (which is identical to that I’ve used a few times at Asda) is that it (moreorless) forces you to take disposable plastic bags. Yeap, the bags for life system – for which you even get an extra Nectar point on each use – is out the window. That campaign a year or two ago to use fewer plastic bags is clearly no longer a priority. Now, I don’t think cutting out plastic bags in itself is going to save the planet, but I abhor waste. If I end up bringing home plastic bags I refuse to throw them out – they’re bound to come in useful, I think – so they pile up in the corner. I am psychologically incapable of using the new checkout process.

And the reason Sainsbury’s force you to use new plastic bags? Well, it’s because they are dispensed over a weighing panel. And why do you have to weigh all items? Because they don’t trust you, that’s why. They reckon that people would deliberately or accidentally slip a few unscanned items into their bag if they didn’t have the weighing check.

You can skip weighing on the screen, but you have to do this for every item. As the queue builds up behind you. And (at least when I tried it at Asda) after you’ve skipped a few items the machine makes you wait for a member of staff to check your not a thief. You could put all the items in disposable bags, I suppose, and take them out again after completing the transaction. But then you’d look like a complete nutter.

There is a way round this problem though. We could achieve a nirvana of efficient self-checkout and reusable shopping bags. What Sainsbury’s could do is put RFID tags rather than – or perhaps as well as – barcodes on their products. These can be detected within, say, a metre (depending on the set-up). As a first step, Sainsbury’s could tell when you had put a tagged item into your bag without scanning it. Heck, they could even detect you leaving the store with an item you hadn’t paid for. Ultimately, though, you could simply pass your bag in front of an RFID reader and it would register everything.

I really resent being inconvenienced by the introduction to the busiest Sainsbury’s in the country of a system that isn’t the finished article. Especially when I have no alternative supermarket to go to.

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