Twenty Third Floor
Technical Business Advantage

The ongoing public sector strike has raised several interesting points.

Not least of which is what teachers actually earn. A full-page advert in newspapers last weekend gave some very respectable figures  for teacher salaries.  A teacher just starting out, with a 4 year qualification has a total cost to employer of around R229,000 per year. This includes 13th check, pension, medical aid and housing allowance, but is a surprisingly high number. It also included the then-proposed 7% increase (versus CPI at 3.7% at the moment).

The offer was increased to 7.5% since the original advert, but the numbers below are the unadjusted numbers in the advert. These are annual basic packages excluding benefits. (It’s unclear whether the before Total Cost to Employer columns include or exclude the 13th check, which is definitely included in the TCE column).

This advert prompted an immediate outcry from teachers writing to complain that they earn nothing close to that figure. This was followed up by government affirming that the figures are correct, noting that many teachers may not add up all the non-cash benefits. (more…)

The New York Times has a fascinating article about “Why are so many people in their 20s taking so long to grow up?“. It deals with the broader issue of how and when young adults move through phases of adulthood and how this has changed over the last 40 years.

It’s based on US research, so the parallel to South Africa isn’t perfect. On the other hand, it may prove predictive for our population.

A few snippets (it’s a long article, but well worth reading the whole thing):

1. The median age at first marriage in the early 1970s was 21 for women and 23 for men; by 2009 it had climbed to 26 for women and 28 for men
2. Definitions of adulthood vary widely – people can vote at 18, but in some states they don’t age out of foster care until 21. They can join the military at 18, but they can’t drink until 21. They can drive at 16, but they can’t rent a car until 25 without some hefty surcharges. If they are full-time students, the Internal Revenue Service considers them dependents until 24; those without health insurance will soon be able to stay on their parents’ plans even if they’re not in school until age 26, or up to 30 in some states.
3. Definitions of adulthood are clearly not just a function of age. (and so our marketing to them should consider more subtle measures than simply age ~ David Kirk) (more…)

In researching my previous post on accurately measuring the risks associated with vehicle crimes based  on colour, I stumbled across another colour related risk measure.

Red cars, supposedly, attract more than their fair share of traffic fines.

Turns out this is incorrect.  Snopes.com has (as usual) an excellent article on red cars, including references to research showing red cars are not more likely to be fined than other vehicles. Unfortunately, the underlying research isn’t available online (as far as I could find).

There have been major developments in the broadband internet space in South Africa in 2010. Several major ISPs have started offering so-called “uncapped broadband” at surprisingly affordable rates.

The immediate astonishment and disbelief at the low prices was soon replaced by sulking and disbelief at the application of “fair usage policies” that restricts the speed at which certain ports run, and the speed at which the entire service runs after a certain (sometimes specified sometimes not) amount of data has been downloaded for the month.

I blogged a few weeks ago about the fundamental economic problems of shared, uncapped (or “common”) broadband access. This hasn’t changed the conversations happening in the wider world.  Maybe next time.

I thought I’d approach this from a completely different angle. Moneyweb has an article today “Is MTN’s uncapped broadband a con?” In reality, the article is taking a fair swing at most so-called cheap uncapped broadband, claiming that it isn’t really uncapped.

Which is ridiculous.

Of course it’s uncapped. You are never capped. You can download throughout the month and never be capped. The complainers are whinging about the wrong word.

What these services are not is broadband. They are uncapped, but the speed at which they are uncapped is too slow to be called broadband. MTN’s product could better be described as 128kbps uncapped, with a speed boost for the first 3GB (or 10GB depending on package). This is an uncapped account but it is not broadband.

The ASA has already had success in the past in preventing some companies from advertising internet services as broadband if they are not fast enough. This should be the angle taken to prevent misleading advertising.

Interconnect fees and the reasons for their reduction are possibly the most misunderstood “big” news story over the last twelve months.

The hype and hoopla around this topic is fueled by our feelings as consumers of being charged too much big big monopoly companies. So I should start by saying that I’m not saying that we are paying too much. I’m not saying that because I don’t know enough about the costs of providing cellular services in South Africa. Maybe we are, maybe we’re not. Also, I’m not saying there aren’t monopolistic practices in the market – again I simply don’t know. Given the other stories torn from inside companies by the sharp teeth and salivating jaws of the Competition Commission, it’s understandable that many suspect consumer-unfriendly play by most large South African companies, particularly those in industries with a small number of players.

What I am saying is that most of what you read in the news about interconnect is horribly misguided.

The biggest misconception is that interconnect fees are an expense for cellular providers, and that the removal of this expense would allow them to reduce tariffs to consumers. Well, it is an expense, but it is also a source of revenue. Every time one company pays an interconnect fee, another company is receiving it.

Interconnect does not change the total amount of profit within the cellular industry. It may redistribute it a little, and there may be negative medium term competitive implications arising from interconnect, but lower interconnect won’t automatically increase profits that could allow competitive price lowering for the benefit of consumers.

TechCentral has an interesting article: Bain warns consumers not to expect cellular price cuts.  Of course, it also include some done-to-death flawed statements (whether from Bain or inserted by the zealous staff writer) such as:

Because new players have few customers at first, most calls on their networks will be to networks of other operators. High interconnection fees make it difficult for them to enter the market.

It’s not that this statement is incorrect (it is in fact correct) it’s just that it is horribly misleading because it only presents one side of the story. I’ve reworded it to provide the stunning insight: (more…)

Are you outraged at the proposed increase in electricity prices from Eskom?

Creative Commons License photo credit: Näystin

If you are, you’re not alone. 88% of readers polled in a News24 poll were “outraged” at the increase. The problem is that all this outrage is irrelevant at best, and dangerously distracting at worst.

Why price is the wrong thing to worry about

Eskom produces electricity for the country and makes a profit or a loss doing so. This profit or loss goes back into treasury, which, inefficiencies aside, belongs collectively to the citizens of South Africa.

If prices are too low and Eskom makes a loss, this shortfall must be made up through higher taxes or lower government spending. If Eskom is not given additional capital, it will have to stop buying coal and stop investing in new infrastructure.

Those who complain about the inflationary effects of electricity prices are considering the issue too narrowly. Electricity prices may be easier to see than broader macro-economic issues about budget deficits, growth-disincentives from higher taxes and other implications of funding electricity generation from general taxes, but that doesn’t mean it is the right way to look at the problem.

Expensive electricity is better than no electricity. Complaining about higher electricity prices, while understandable, is not useful since the money must come from somewhere.

The real 5 issues we should be discussing

1. Is Eskom generating electricity efficiently, and at an appropriate cost (compared  to international benchmarks, adjusted for our local fuel costs and other differences)? If Eskom is not producing power as cheaply as they should, let’s focus on fixing the operational and industrial design problems to fundamentally lower the costs of production. More efficiency benefits entire country. (more…)

After my last post around common misunderstandings of how medical schemes operate,  I saw a Fin24 article on South African medical schemes that are below the required minimum solvency.

What Fin24 readers had to say

Nolulamo Matutu from Fin24 writes:

Acting CEO of the CMA Patrick Matshidze told MPs 18 schemes have fallen below the prescribed solvency ratio of 25%.

Clearly, these 18 schemes cannot pay all the claims we all would like in an ideal world.

However, more interesting to me than the article itself (fairly balanced and factual) were some of the comments written below. Clearly the misconceptions are still strong!

Fed Up had some strong views:

I’d like to see them look at medical aids the other way and see how many of them are making huge profits, some make billions are rands profit which in my opinion is really just ripping people off, medical aids should be non-profit as the less they pay out the more people suffer. Also medical aid is such a bad word, it should be called what it is medical insurance.

I wonder who be the one to break the news that medical aids are non-profit? (more…)

Taxes are bad, right? Death and taxes, mentioned in the same breath so tax must be bad. We have to pay it, never want to pay it, imagine what we could afford if we didn’t have to pay it. Taxes are so bad that we spend millions on paying less tax.

But of course that’s all wrong. Taxes are not bad.

Got your attention?  Good. Note that I didn’t say taxes are good. It’s a little more complicated than that.

Even in the most free, capitalist society taxes are necessary. It’s not that paying tax has some sort of magical benefit, but rather than government expenditure (financed through compulsory taxes) is sometimes the optimal solution for the country.

I like having a police force and judicial system and clean, running water and roads and trains and light-houses and compulsory vaccinations and a thousand more things. These are typical examples of goods and services that can better be provided through the scale of a national government and financed through compulsory taxes rather than relying on free markets to provide the appropriate amount of services.

I benefit from every vaccination provided, since it reduces my risk of infection. Most people (and I’m sure I’m included here too) wouldn’t pay for the vaccination of others just because they received a benefit. Rather let somebody else pay for the vaccination since they will also benefit. Do we really want corporations to run our judicial system? Access to good legal representation is already a function of money, I’m quite glad the judge I get trying my case isn’t a function of how much I can afford! (more…)