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Tuesday, 22 October 2013

The BBC Worldwide online content that British license payers aren't allowed to see

I imagine it takes a very special type of BBC executive to arrive at a decision like this - you know, the kind of executive raking in a 6-figure salary with a large golden handshake awaiting them when they finally run out of sideways promotions after messing things up just one too many times...
Foreigners Only!

BBC Worldwide content is available free to worldwide audiences, funded by advertising; therefore it follows that BBC license payers back in the UK must not be allowed to access this ad-funded content because they haven't "paid" to see it by being subjected to adverts.

As the BBC help page I was redirected to after being sent this story by a friend overseas states:
"We're sorry but this site is not accessible from the UK as it is part of our international service and is not funded by the licence fee. It is run commercially by BBC Worldwide, a wholly-owned subsidiary of the BBC, the profits made from it go back to BBC programme-makers to help fund great new BBC programmes. "
Yes, it makes perfect sense.  If UK license-fee payers were allowed to see this content for free then Great Programmes wouldn't be made and the world would end.

No mention of the complex cross-funding deals that allow BBC Worldwide to sell license-fee funded programmes whilst returning a meagre 10% of its turnover to the Beeb Proper, or the £687,333 redundancy payment made to a BBC executive leaving the BBC to join... BBC Worldwide, its wholly-owned subsidiary.


Good value? Where's the data behind "the most transparent deal ever made"?

Here's a thing - I'm actually quite good at modelling costs.

So when the Energy Secretary yesterday announced an effective tax on electricity bills to support the building of a £16bn nuclear power station at Hinkley Point I naturally started to pick apart the details of the deal.

But I came unstuck.  Whilst Ed Davey trumpeted the investment in nuclear power as good value for British energy consumers and "the most transparent deal ever made", I struggled to find any substantial data to explain the inflation-linked "Strike Price", a consumer-subsidised rate of £92.50 per megawatt hour that the private consortium building the plant will receive for electricity until 2058.

Yes, the government's website is flush with press releases and infographics trumpeting job creation and low-carbon energy production, but what I really want is the business plan that justifies the public subsidy.

Given such information I will be able to give a better view on whether the deal really does represent a good deal for the taxpayer.

After all, capital costs of £16bn seem rather high, even for a nuclear power station. And given the nature of the deal - what amounts to a Wonga-funded hire purchase with investors expecting a 10% annual return on their investment (FT subscription required), it's all a bit incestuous; the supplier also gains through the provision of finance, tempering the market forces that should otherwise be driving down construction costs.

The government seems to be taking all the risks: fixing prices, providing guarantees against cost overruns; why its even committed to underwriting 65% of the capital costs as public debt - are the investors hoping to make a 10% return on the government's own money, too?!

Yes we know it costs a lot to build a nuclear power station, and its widely accepted that the capital costs are by far the largest contributor to the price of nuclear power, but estimates on the actual operating costs (excluding capital) of a nuclear power station vary widely: from just over a cent per kilowatt hour to 2.6p averaged over the UK fleet in 2009 to many times higher.  For a wider discussion try Wikipedia.

With no solid data in the public domain its impossible to judge whether we're being sold up the river.

And here's a thing. Building a model with the data that is available (an inflation estimate of 2%, a strike price of £92.50, construction costs of £16bn and a best-estimate of operating costs of 2.8p per kWh - adjusting the 2009 UK fleet average data for inflation) the investors won't be getting the equivalent of a 10% average annual return.  It will be more like 9%, after adjusting for the absence of dividends over the construction period.

However should inflation average 2.5% they will see a return of around 9.5%

But as I mentioned I can't find details behind the government debt underwriting 65% of the initial outlay.  If investors are only providing 35% of the funds then either the government stands to make a hidden return on underwriting the deal (UK 30-year gilts currently yield around 3.6% -  far less than the 9% return my model indicates), or the private consortium stands to make a far higher return on their 35% contribution than they have so far admitted.

Of course my calculations all hinge on inflation-linked best-guess operating costs of 2.8p per kWh.  This includes everything from fuel and staff costs to waste processing and storage and setting-aside the required decommissioning costs under a Funded Decommissioning Programme.

It's not inconceivable that EDF believes it can run the plant more cheaply than the average for the UK fleet.  After all this will be a modern high-output plant with associated economies of scale.  Some US studies claim operating costs as low as around one cent per kWh.

If EDF can get the operating costs down to around 1.8p/kWh they should easily make a return of 10% on the £16bn capital outlay, even if inflation hovers around 2%.

But here's the kicker.  If the government actually funded the whole project with public borrowing, assuming it was capable of delivering on time and on budget, the cost of borrowing would fall to around 3.6% - the price the government pays on its long-term debt.

Now with debt at this price and inflation-linked operating costs of 2.8p per kWh the strike price could be as low as £54.00 per megawatt hour - not far off the current wholesale price of electricity.

Additionally if operating costs of a modern plant can fall to around 1.8p/kWh the plant could be undercutting current power generators with a unit price of £48.50 per megawatt hour once capital costs are included. Bearing in mind capital costs and interest in this model are amortised over the first 35 years of the plant's planned 60-year life, costs should fall substantially in the second half of its life.

So has the government got it wrong? In its eagerness to involve private finance it has been forced to rig the market, sacrificing one free market ideal for another.

This market rigging tempers incentives to innovate to reduce construction and operating costs whilst providing a bad deal for customers; driving-up the overall cost of electricity and skewing the wholesale market for all generators.  Britain will be paying twice as much for electricity in real terms by 2050.

Whilst it seems to go against the ideology of a right wing government, a better option may well have been to leave the price to the market and fund the construction as a government project.


PS George Monbiot has a wonderful critique on the "farce" of investing in ageing nuclear technology.

PPS assumptions in my model:  the power station capacity is 3,200 megawatt, reactors are likely to be offline for around 40 days every 18 months for refuelling, electricity will be sold at £92.50 per megawatt hour and government sources are talking a lot about CPI inflation of 2% in relation to this deal, so we can assume that might be the figure EDF used in its own economic modelling. We also know investors expect a return of around 10% and the initial outlay is £16bn.

Tuesday, 1 October 2013

Will we ever reach peak tolerance of crap software and unfair terms?

If you've ever bothered reading a software license of the sort that comes with everyday software you'd probably struggle to cope with the rage against unfair and restrictive practices.

For example, as a small business owner I often choose to build my own computers; that way I ensure key components like the motherboard allow an upgrade path that will give me reasonable performance over 6 or more years' of life.

However, try and buy an OEM (Original Equipment Manufacturer) copy of Windows 8 Professional for a new home-built PC and you find that whilst your hand-assembled computer does fit all the requirements set down by Microsoft in the OEM license, as a small business owner I'm prohibited by this:
3. Key licensing terms for your use of this product are:
      * As the operating system on a PC you build for personal use 
(my bold)
This is exactly like turning up at a car showroom to buy a brand new car, only to be told the price doubles if I want to use my car to drive to business meetings.

Where is the fairness about being told what I can and cannot do with something I just bought?

The answer is in the question.  I didn't buy anything; at least not according to the software vendor.  The view of the software vendor is that they are only selling you a license to use their software, and that means they can also set down terms over how you use their software.

As it happens the licensing quagmire with Windows 8 with respect to "personal use" gets even more interesting since the license seemingly goes on to contradict itself:
The software package may not be used:
* [...]
* To license more than five copies of the software (in total) for commercial use  
So it's far from clear whether a small business owner with 5 Windows 8 Professional PCs risks death by lawsuit at the hands of Microsoft until such a case hits the courts.

Presumably then one could also test whether the use of the word "Professional" in the title implies commercial use, as I had assumed myself when I bought the software.

Of course all this is moot since I found Windows 8 practically unusable and instead opted to buy a Windows 7 upgrade for an existing copy of Windows Vista and upgrade the hardware rather than struggle on with Windows 8.

But the point is that many such conditions are largely untested in court, and they will probably never get tested because of the huge costs that would be awarded should one lose such a case.

So consumers - small business owners especially - will play it safe, potentially paying over the odds for software because software vendors include increasingly restrictive terms in their licenses in order to milk every last drop from the market.

And such terms aren't the only trick up the software vendors' sleeves. The other big con is built-in obsolescence.

I don't mean to be mean to Microsoft here but they are making it hard for me not to use their strategy to highlight my case.

The main reason I need to upgrade from Vista, apart from it [still] having a few performance snarls, is that I want to upgrade from Office 2007.

Microsoft has in its wisdom decided that Vista users cannot install Office 2013.  They also decided Vista users can't have Internet Explorer 10 either, but that doesn't bother me so much as I only use Internet Explorer for software testing and we have separate machines for that.

Whilst Microsoft officially defend these limitations on technical grounds I strongly suspect otherwise.

Oh, and the main reason I want to upgrade from Office 2007 is that the crappy half-baked ribbon still annoys the hell out of me.   So really I need to upgrade my duff operating system because I want to fix some duff office software.  Thanks guys!

But I am being unfair to Microsoft because they aren't the worse culprits on obsolescence.  No, seriously, I mean that, without even mentioning the Windows XP end-of-life exploit timebomb...

I previously blogged my frustration about VMware releasing a new version of their virtualisation product Workstation every year, effectively leaving those who don't pay to upgrade with no long term support.

And mobile phone and tablet manufacturers could be leaving me open to a greater peril: malware.

My phone, an original Samsung Galaxy S, is 3 years old and the last software upgrade available from Samsung was over a year ago.

Federal authorities in the US estimate millions of Android users are vulnerable to cyber threats and I can only assume my phone, having had no software update in over a year, is one of those.

Buying a new phone so that I can protect myself just reinforces the new norm that a piece of equipment originally costing me £500 has a lifespan of a measly couple of years.

If my washing machine broke after 2 years I would be filling the consumer review websites with my dissatisfaction. TVs, fridges, dishwashers - we expect all these appliances of similar value to last 5 years at least; and hope for 10!

But mobile phones are more like a computer than a fridge freezer so I should scale my expectations accordingly.

However phones generally have one major limitation: the hardware and software is typically locked so that owners can't take matters into their own hands should the operating system provider abruptly end support.

Yes, that old PC running Windows 2000 could still be useful if you can be bothered to install Linux and only want to use it for basic tasks like typing letters.

But when hardware is locked down it is essentially like buying that new car I mentioned earlier, but with the engine compartment padlocked so that only authorised dealers can perform repairs.  Doesn't sound very free market to me; especially since competition authorities around the world have by and large already dealt with the monopolistic threat from requiring drivers to use only "authorised service centres".

How long will consumers continue to lap up the slop that software vendors are forcing us to eat?  Perhaps until something or someone forces their hands.

Maybe if my phone gets a virus because the manufacturer has stopped providing updates I could sue for any material losses suffered?  After all I have no options available to me bar stopping using the phone, and this is by design of the manufacturer, rather than accidentally ending up with a car that no-one is capable of servicing.

The global software giants will continue to focus on profits above software reliability, security and consumer satisfaction until something changes; because, at the moment, there's no downside for an industry simply doing what it pleases to sell more and more stuff to people; people who have a rather narrow range of options available to them.