Google Fi et al:

Interesting week with the news that behemoth Google plans to become a Telecom with the introduction of its own brand of service for voice and data covering the entire continental USA. Even more fascinating is how they plan to achieve this in short order.

Rather than duplicate expensive infrastructure Google plans to piggyback on two existing smaller carriers  Sprint and T-Mobile in a seamless pattern that will allow for uninterrupted coverage in nearly every state in the Union. By helping second tier carriers bulk up Google may well be showing us the way of the future. In the case of Canada let’s hope so.

There is relevant historic experience so as to make the case that existing owners of transmission facilities, be they by means of cable satellite or towers, that operate at the behest of government and regulatory authorities, by way of oligopoly, should be deemed ‘Common Carriers’ in the same fashion as are the railways and certain pipelines. (Some are both common and private carriers)

A common carrier is required by law to carry goods and services of all requesting parties, excluding certain hazardous goods, at rates that are reasonable and not usurious, (my interpretation) This does NOT render them as utilities, subject to agreed upon rates of return, but it does allow for a challenge to the granting authority, in cases where rates are thought to be  injurious to a shipper.

This may sound simple but the devil, as always, is in the detail. The spectrum, another word for the highway, is granted by the grace and favor of the central government, and comes with certain conditions attached. It also comes at a very steep price, since these are but ‘a very  few of a kind’  a form of oligopoly.

Stripped of hyperbole the bidding for spectrum is a form of tax on future users. The higher the price for the spectrum, the greater the tax. On top of this users will also be levied for all kinds of other taxes and user fees. It almost like sin taxes.

Viewed in this manner it is easy to see how Google is getting a one up on its competitors. It can offer greatly reduced rates for service because it is coming late to the party by offering relief to Sprint and T-Mobile for over paying for their chunk of the highway.

The marginal costs of carrying a giga-bite of data,  should, at this juncture, be very small,  because the pipeline is not full. If as and when it is full then the carriers will have the where-with-all to bid up the price for new spectrum.  So it’s a win win situation for all. 

Small wonder governments in Europe are terrified of this innovative company.

During this same week came the news from England of the arrest of a mathematician, holed up in an insignificant row house in suburban London, for writing code for an algorithm  ( a self-contained step by step set of instructions to be performed usually by a computer) The formula in this case  allowed him to instigate a Flash Crash on the most efficient stock market in the World and make himself millions in the process.

This bloke maybe be almost as scary to regulators as Google. Mathematicians or quants, as they are sometimes called,  operate in almost a vacuum since so few understand what they are about. This is why, no doubt, they are sometimes called ‘Rogue Traders’ 

Author Michael Lewis, in his wonderful book “Flash Boys” gave us a terrifying glimpse of what can happen when  a Russian Quant is turned loose on unsuspecting  unknowing  regulators and ignorant law men. 

The trial of this young man will likely be a joke. The law know he has done wrong but they do not know how, only that they were on the receiving end of an unwelcome reminder that they are ignorant of most of what is going on in the digital world.

 

 

Rant du Jour:

My Rant du Jour is about someone else’s Eureka Moment. A phantom that quite suddenly, and without warning, came back to life .

I am referring to Canada Post, for the benefit of American readers, the Post Office , that despite rumors to the contrary,  still does exist in Canada, albeit barely. 

The downfall of this once proud and venerable institution, that was once upon a time called “The Royal Mail”  was benign neglect and political irresponsibility, How else to describe how an outright monopoly can go so badly wrong by totally ignoring the thundering waves of innovation, while rewarding its workers with a pay scale that most of us can only dream of.

In 1885 the first Canadian  transcontinental railway was completed by the Canadian Pacific Railway, an incredible feat, at a then staggering cost. One of the most important tasks assigned to the new juggernaut was the carrying and sorting of Mail (The Royal Mail).

Believe it or not, shortly thereafter  it became possible for Canadians to send mail from coast to coast in less than seven days for approximately 5 cents a letter. Compare this to today when even first class mail, whatever that may mean,  takes at least as long (not counting weekends and holidays) and costs over ten times as much.

The answer provided by Canada Mail  to the innovation of e-mail and the likes of FedEx and UPS,  was less service at greater cost. And so the rot set in, with a downward spiral that saw staggering loses and an almost fatal discontinuance  of rural service to a nation spread out over five time zones. All of this during a period when mail was the sole basis of formal legal notice.

Then, when all appeared lost, Canada Post discovered Amazon or maybe it was the other way around?.

I found this out by accident in a discussion with a very charming French Canadian  contract mail currier who delivers to the rows of boxes in the rural village where I live. We met over our mutual love of dogs, and we have lots of dogs in the village, most of whom I know better than their owners.

One fine day I saw my friend delivering  a parcel to a neighbor. Since we have not seen rural delivery for as long as I can remember, I was naturally curious to know what was up.

She told me her sorry tale of how the contract carriers were now called on to deliver parcels, from Amazon and others, the same day, before or after taking care of delivery of letters and junk,  in my case, a rural route of many miles (sorry kilometers). She tells me it takes her five hours for which she only gets paid for four hours.  Now here’s the catch. The carriers  will get paid one dollar for each parcel delivered AFTER the elapse of one year. Yes that’s correct after waiting a year. In the meantime they have to fork out for gas and maintenance of a four-wheel drive vehicle on a daily basis.

In a clear case of the sublime to the ridiculous, I now see  Canada Post has turned its first profit in a very long time. I wonder if they have accounted for what they owe to their hard-working underpaid rural carriers and their interest free loan? I also cannot help but wonder how employees of other delivery services would respond to a similar request by their employer?

Fat chance you might say. To which I would answer that’s  what you get when you have monopoly pricing power. I am sure Canada Post will be quick with an answer, but somehow it does ring right when independent contractors have to subsidize a Crown Corporation. If money is so tight why don’t the union employees make the boss a loan? 

Great Britain has now made the Royal Mail a Public Corporation. Maybe its time to do the same thing in Canada or maybe even the good old USA.

 

 

Eureka Moments:

Something new, and its about time, according to one of my daughters, an executive, and blogger, with Canadian sensation Haute Suite in Vancouver. “You write about the same old boring stuff about economics and the economy. You need to write things that interest people of my generation” Generation X or Millennials  maybe?

OK I get it, or at least I think I do. So I have decided on ‘Eureka Moments’ as a new feature that will be kind of like ‘Aha  moments’ when I get a blinding glimpse of the obvious.

I had such a moment this last week when the mainstream media was carrying on about how the TV Cable Industry was changing,  or more aptly, adapting to the loss of cable subscribers to streaming applications such as Netflix. What fascinated me was not the facts of the matter, these are evident in the numbers, but why are they happening?

The lame excuse pumped out by the Industry is that users, meaning younger savvy users, want everything on demand how and when they want it, and do not care for all the news and other hoopla. Maybe. But this does not square with what I am hearing. I think the reason subscribers are leaving the  cable ship in droves is because  Channel TV has become so incredibly bad and boring. 

Then there is also the elephant in the room in the form of the endless ads, that streamers do not have to watch. Maybe they pay for this privilege, maybe not, but I would be willingly pay to be rid of this irritant.To say nothing of the promos that do not count as ads in the regulatory framework.

The thought of not having to listen to and see Hillary’s (Clinton) exploits for the next sixteen months is enough to set me slavering at the mouth and demand my cable company sever the chord.

I can get all the news I want on my lap top or phone if I really need it?. Why would I subject myself to the cruel and unusual punishment that is today’s Cable News.  I can even get David Brooks, the most astute print commentator on the planet, when I want without having to tune in.

This does not mean I am a Social Media Hound, I will leave this to others. What it does mean is that I can be selective rather than slavish, a rare treat with the present deluge of media.

As one informed young lady put it to me “The only time it’s (Cable News) interesting is when they are reporting on what was already been reported on Social Media”

I do not delude myself that cable  is going away anytime soon or that it’s going to become cheaper. It looks to me like a swings and roundabouts situation. The cable companies will charge more for band width to make up for the loss of Cable TV revenue.  But the thought of paying no more for real choice is  very tempting.

Now if I can just find a way to watch sports without the constant prattle of the Color Commentators.

 

 

 

The Holy Grail:

I have long been fascinated by a subject that can only be described as the ‘Elephant in the Room’ in so much of what is written and spoken about in our daily lives. This I call the Holy Grail or the possibility of everlasting life free from disease and hunger. 

The subject has been the focus of mankind since the beginning of time. For more than three thousand years it was pretty simple. The elite realized that while the reality was impossible, the promise could be a powerful incentive to subjugate the masses. If you believed  and obeyed you would be granted everlasting life, albeit many times, in a different venue. It should be no surprise  why so many of the world’s religions took this simple and easy tenet as their center piece. 

All of this began to change with two world wars of the twentieth century. The staggering scale of the carnage made advances in medicine a virtual necessity, and not surprisingly the re-direction of vast amounts of capital in the second post war era led to the nearly two-fold increase in the expected life span of citizens in the Western World. Now globalization is fast spreading this incredible innovation to the rest of the world.

We are  only now starting to realize the longer term effects of all of this.  Some of these are baffling even the brightest minds and the most astute of the elite. (even though they do not admit the fact)

I like to start this argument, maybe unfairly, with the liberation of women by the invention of that little pill commonly called birth control. The effects are truly staggering. Now that women make up almost half of the workforce birth rates have fallen and the extended family has become a quaint relic. Now what do we do?. Our whole society appears out of balance. We have  many more older people and many  fewer young people to take care for their elders.

We are stumbling around trying to figure out what to do about all of this. In the meantime the promise  of eternal life remains the driving force behind the incredibly sums being expended by the  behemoth drug industry and increasingly the research establishment. It’ almost like we are racing around an ever-increasing circle.

The current example of Japan is a classic. It can be said that this country was the ruling exponent of the extended family and an orderly society that grew from the ashes of the Second World War. In fact it was so successful that the country was feared and loathed by its competitors. But something went very wrong, for quite suddenly the birth rate started to fall,  citizens began to live much longer and growth of the economy, the pillar of an export oriented  economic policy dried up. The country became mired in deflation a condition that has now prevailed for over twelve years.  The initial blame was laid at the feet  of a credit crisis caused by inflated real estate values, somewhat like the 2008 mortgage debacle  in North America. More recently it is the lack of immigration to make up for the low birth rate that is taking center stage.

 But could this be something more sinister. Lets call it S.G.S. or Slow Growth Syndrome a condition bought about by globalization whereby the center of gravity has changed from the developed to the developing. To wit the likes of China, India, and Indonesia. These economies are primarily industrial as opposed to North America that is fast becoming a mainly service economy. They are growing at rates we can only dream of while we muck about barely  avoiding recession.  

 To date our answer has been to throw money at the problem, funny money that is. Money that is being created out of this air to keep interest rates artificially low. Put another way we have left to the bankers to solve a structural problem that is deep-seated and pervasive.

I do not think this solution is going to work. It is going to take far more imagination  and a great deal of ingenuity to come with an answer. Perhaps a realization of the obvious will help, namely that it is quite impossible to keep on going in the same direction. Either the increase in life expectancy must slow down, or the population increase must speed up by means of immigration. OR, perhaps we can learn to live with less

The Emperor and the Banker:

My favorite fable by Hans Christian Anderson is the one about the Emperor who was able to strut around nude, based on a myth, sold to his subjects by his minions, that he was dressed in the finest raiments,  until one small boy pointed out the obvious that the Emperor had no clothes.

At the risk of parroting this little boy I believe the Central Bankers of the U.S., Europe, and Japan  with their policy of ‘Quantitative Easing’ another word for printing trillions of dollars, euros, and yen, are pulling the same stunt. They believe, or they say they do, that if they flood the world with Dollars, Euros and Yen that asset values will rise and consumers will feel more wealthy and spend more. (In other words they are trying to create inflation)

The current dogma is that a little inflation is good because it keeps deflation (falling prices) at bay and no one anywhere knows how to manage an economy with no growth and falling prices. To wit the example of Japan during the last decade. In other words printing money and debasing the currency is the lesser of two evils.

To my simple mind there is something fundamentally wrong with this logic, not because it had never been tried, but because it flies in the face of very tenants of money, as we have known it for four thousand years.

Money, as we have known it, must be a medium of exchange and also a store of value. If it fails as a  store of value, it will not be accepted as a medium of exchange for very long. In the simplest of terms people will be loath to sell hard assets, gold, real estate, and other commodities, in exchange for paper currency that is being produced in limitless quantities. Value is created by scarcity rather than by quantity. Sir Isaac  Newton spent a great part of his life trying to convert lead into gold, a pointless exercise, since had he succeeded, gold would have reduced to the value of lead, rather than the other way around.

Sometimes I think it is hubris on the part of the bankers, who take the position that you can fool the great unwashed into believing that the Emperor still has his clothes. Indeed, former central banker Greenspan, recently opined that it was globalization that allowed for printing of limitless amounts of money without inflation. This is a dangerous fallacy. The bulk of demand for gold, other than from central banks, comes from two billion lower income people in India and China who already do not believe in the value of paper currency.

The bankers, in their defense, point out that when growth rates improve, they will reverse the policy and shrink the money supply. The last time this was tried was during the reign of Paul Volcker as Chairman of the U.S. Federal Reserve, when, in 1981-83  interest rates increased  to eighteen percent and stagflation was rampant. A time of great misery for millions of people. This well maybe the reason for the incredible volatility the stock  markets, when even the whiff of an increase in interest rates, sends the stock market into a tail spin.

What is far more likely is that there will be a new world order created for money, as a perpetuation of the myth that a bigger mess can solve all problems. The ‘new money’ will replace the dollar as the excepted medium of exchange for international trade. The value of this new specie will be based upon the value of commodities (gold silver, copper, oil ) in addition to a basket of paper currencies including the Chinese Yuan.  Thus created, and who is going to say no, will relieve the U.S. Federal Reserve, of the unpleasant necessity of telling the populace that they must lower their standard of living in payment for past excesses.