COB-10: customer service standards and processes

Nothing is more important to a bureaucracy than customer service standards. Undoubtedly the customer service metric that should have the greatest weight in a customer service performance index is the human touch. Steve Portigal offers an insightful policy initiative that would promote customer service and innovation:

I would introduce empathy processes into government, especially departments that interact with the public or with businesses. Everyone – EVERYONE – will go through the process that their “clients” go through, on a regular basis (say, once per year). DMV clerks who stand in line (as the obvious example) will have an opportunity to see what the “other half” experiences.

A goal would be for the government to develop a set of best practices for user-centered-design – where design is making anything that gets used or experienced by someone else, apply those as broadly as possible throughout government, and then help businesses adopt more of these into their own practices.

I think the government can help even more. Since few persons actually spend any time working in government, web-based training technology can help to disseminate to businesses government best practices.

As a public service, the Carnival of the Bureaucrats offers you a training opportunity satisfying that program objective. Watch the video below. While doing so, smile, enjoy life, radiate good will and human understanding, and at each cue point in the video, say sincerely, warmly, and sympathetically, “I’m so sorry, my Division isn’t responsible for that problem.” Practice until you can finish the whole video without getting grumpy, sarcastic, or contemptuous. You can do it!

KC Johnson at Durham-in-Wonderland offers posts (here, here, here, and elsewhere) suggesting that leading U.S. newspapers could use empathy training. The Duke Debacle has revealed a travesty of justice. It makes a caring person wonder how many persons spend decades in prison because of corrupt officials, unchecked by media acting in the public interest. But apart from that systemic issue, the lack of concern that leading newspapers have shown for the pain and suffering that they have caused three innocent persons is even worse than actions unbecoming of a bureaucrat.

Hueina Su at Intensive Care for the Nurturer’s Soul encourages readers to “Take the L.E.A.P. for Life’s Changes.” She observes:

Change is inevitable. Think about it: everybody and everything in the world, even every cell in your body, are constantly changing, and there’s no stopping them.

Time can pass with little notice in a bureaucracy. A bureaucrat can find herself or himself retiring without adequate preparation for this major life change. Always carefully consider the implications of any new actions with respect to your retirement plans. There’s no avoiding getting older!

David at the Alexander Report submits Ted Santos post/column entitled “Just Change Your Mind.” He explains:

Looking to the future of organizations, there may be a greater return on investment from training people in intrapersonal skills – a clear understanding of the relationship with self, chaos, opportunity, the future, change, risk, and colleagues. That way, people can learn to let go of old thought patterns and uncover blind spots.

The free training the Carnival of the Bureaucrats offers this month seems to be exactly the sort of investment that he tentatively endorses.

Jack Yoest at Reasoned Audacity presents Lurita Alexis Doan’s basic ground rules for “How To Cut The Federal Budget at a Government Agency.” This topic makes me a little uneasy. I can’t imagine any circumstances in which cutting a federal agency’s budget would be humane or necessary. Nonetheless, this submission appears to satisfy the regulations governing submissions to the Carnival of the Bureaucrats. Honoring the bureaucratic principle of regulatory inclusiveness, I am thus including this submission in the Carnival.

Jeff Jarvis at BuzzMachine has posted NBC’s regulations of democratic discussion of the U.S. presidential debate. This truly news-leading bureaucratic work, in addition to forbidding “internet use”, includes among its six rules the following:

4. No more than a combined total of 2 minutes of excerpts may be chosen for use during the period from the end of the live debate (8:30 pm ET) until 1:00 am ET on Friday, April 27. After 1:00 am ET, Friday, April 27, a total of 10 minutes may be selected (including any excerpts aired before 1:00AM). The selected excerpts may air as often as desired but the total of excerpts chosen may not exceed the limits outlined.

5. No excerpts may be aired after 8:30 pm on Saturday, May 26th. Excerpts may not be archived. Any further use of excerpts is by express permission of MSNBC only.

You just can’t find a more professional bureaucracy than that of an old-fashioned video distribution company.

That’s all for this month’s Carnival of the Bureaucrats. Submit your blog article to the next edition using our carnival submission form. Submissions should conform to the Carnival regulations. Past posts and future hosts can be found on the Carnival index page.

the enduring significance of distance

One of the best-supported empirical economic models is known as the gravity equation. According to this equation, trade between two regions is proportional to the product of economic activity (GDP) in the two regions divided by the inter-region distance raised to about 0.9.[1] This relationship is formally similar to Newton’s law of universal gravitation, except that distance is raised to the power 0.9 rather than squared.

The effect of distance in the gravity equation is not just a matter of transportation costs. According to a recent study, the significance of distance for trade fell from 1870 to 1950, but then rose through to the present. The distance exponent was 24% larger in the 1990s than it was from 1870 to 1969. The variance of these estimates is such that this difference is significant at a 1% level of significance.[2] Changes in transportation costs are an unlikely explanation for this temporal pattern.

The gravity equation holds in some circumstances of zero transportation costs. For free, taste-dependent goods (music, games, and pornography) consumed over the Internet, the distance effect is similar to that in the general gravity equation. When acquiring those goods involves a financial transaction, the distance effect is much larger. In contrast, Internet-based acquisition of goods such as financial information, technology information, and software does not depend on distance.[3]

Increased physical distance is associated with greater taste difference and greater difficulty in establishing trust. Distance is thus relevant for communication networks even when distance does not drive communication service costs.

Notes:

[1] Disdier, Anne-Cèlia and Head, Keith (2004), “The Puzzling Persistence of the Distance Effect on Bilateral Trade,” Centro Studi Luca d’Agliano Working Paper No. 186, p. 24.

[2] Ibid., p. 18.

[3] Blum, Bernardo and Goldfarb, Avi, “Does the Internet Defy the Law of Gravity?” Journal of International Economics, forthcoming.

stop laughing at me

Ambitious young professionals need to consider carefully career development. As set out in my personal development plan, I’m working on conforming to standard web metaphors, smoothing out my quirks, and improving my presentation skills. Recently I gave a presentation at Mister Days, a very noisy sports bar. I learned that when the room is very noisy and people aren’t paying attention to you, you just have to yell to get your point across.

[if you don’t see the video, try here]

ubiquitous fiber network in Japan

Homes in Japan are rapidly being connected to optical fiber communications networks. Japan’s incumbent communications company, NTT, had 6.08 million subscribers to its fiber network at the end of March, 2007. That figure indicates an increase of 2.66 million subscribers from March, 2006.[1] NTT’s share of fiber network subscribers in Sept., 2006, was 66%.[2] If that share held constant through March, 2007, total fiber network subscribers in Japan at the end of March, 2007, was 9.2 million.

NTT’s plans suggest that all homes in Japan will be connected to fiber networks by 2010. NTT East already has fiber reaching at least 75% of homes in its service area.[3] NTT as a whole seeks to have 30 million fiber network subscribers by 2010.[4] Japan has about 50 million households in total. NTT’s plans are thus consistent with, in 2010, it having a 60% share of fiber network subscribers and all households in Japan being connected to fiber networks.

Having ubiquitous fiber networks in Japan in 2010 is consistent with the goals the Japanese Telecommunications Council set in a 1994 report. That report declared a target date of 2010 for “nationwide upgrading of fiber-optic networks”:

in response to growing demand, the full-scale development and final expansion of network infrastructure should be promoted toward accomplishment by the year 2010. Fiber-optic cables should be installed at least on feeder lines, up to the distribution points, to promote the creation of a situation where infrastructure can be readily utilized at each stage.[5]

The associated network diagram shows optical network units attached to each house and business.

NTT has invested heavily in its fiber network while being subject to comprehensive unbundling regulations. NTT is required to unbundle copper loops and to allow line sharing (competitive DSL service over the primary copper loop NTT uses to provide plain old telephone service (POTS)). NTT is also required to unbundle fiber loops and interoffice fiber.[6]

Prices for unbundled elements seem to favor copper unbundling much more than fiber unbundling. The per month prices for sharing an unbundled cooper loop and for an unbundled fiber loop are about JPY120 and JPY5,100, respectively. At USD1=JPY117, the dollar equivalents are $1.03 and $43.59 per month, respectively.[7] NTT’s market share for DSL subscribers is 39%, compared to 66% for fiber subscribers.[8] Given that the NTT unbundled copper loop charge is much lower than the NTT unbundled fiber loop charge, it makes sense for competitors such as Softbank (Yahoo! Broadband) to focus on providing DSL service over NTT copper. Moreover, given the low copper loop rates, it’s not surprising that competitors use NTT copper loops rather than installing their own copper facilities.

NTT asserts that regulated unbundled fiber prices are much lower than NTT’s costs of providing those facilities, but relevant data are difficult to interpret. Unbundling can imply a wide variety of charges in addition to monthly loop recurring charges. Ties between charges for using unbundled elements and other charges, such as universal service charges and POTS charges, can be highly relevant for evaluating unbundling economics. With respect to just unbundled loop costs, Takashi Ebhihara, a senior NTT executive, recently stated that NTT’s costs for fiber loops were $200 per month, but with increased volume have fallen to $100 per month.[9] Because of economies of scope in laying fiber, costs per subscriber depend strongly on the share of eligible subscribers who actually subscribe. That may be part of the explanation for NTT’s reported falling cost.

Even $100 per month costs for fiber loops is high. Verizon reported that its total capital expenditure in 2006 per home passed for its fiber network expansion was about $900, with about an additional $900 per home connected.[10] Fiber is an asset with a long life, and Japanese interest rates are nearly zero. At cost of $100 per month over just five years at zero interest, the present value of the cost is $6000. Moreover, NTT sells FTTH and FTTB at JPY6,700 and JPY3,950 per month (equiv. $57 and $34 per month), respectively.[11] These prices, which are much lower than the quoted loop costs, make sense only if NTT is aggressively seeking to acquire fiber subscribers and expects its fiber network costs to fall significantly in the future.

The two most important factors accounting for the expansion of fiber networks in Japan are probably very low monetary interest rates and institutional policy commitment to provide ubiquitous fiber network. Since the mid-1990s, the Japanese central bank discount rate has been below 1%. In contrast, U.S. Federal Reserve discount rate has been above 5% for most of that period. Cheap access to capital encourages major capital investments.

A ubiquitous fiber network has been a broad policy goal for both the Japanese government and NTT. The 1994 Telecommunications Council Report clearly expresses the importance the Japanese government associated with communications network investments. With respect to unbundled element prices and costs, Ebihara observers, “It’s a huge issue. It’s very difficult.” (watch above video from time 38:20 to 42:10) At the same time, Ebihara clearly believes that investment in fiber networks has general importance for all citizens and for NTT’s future. In a poignant conclusion to his presentation, Ebihara stated that he thinks NTT should both continue to lobby the government for higher unbundled fiber prices and continue to invest in fiber (watch video 1:24:40 to 1:32).

Update: Ernst-Olav Ruhle of Juconomy clarified that the rate for an unbundled copper loop cited above is the rate for line-sharing. The current rates for full unbundling for NTT East and NTT West copper loops are JPY 1,311 and JPY 1,393 per month respectively. The current rates for line-sharing for NTT East and NTT West copper loops are JPY 93 and JPY 101, respectively. Note that DSL providers such as Softbank (Yahoo Broadband!) provide voice service via VoIP, e.g. BB Phone. Hence they have no reason to purchase a full unbundled loop other than to avoid technical coordination problems with NTT.

Notes:

[1] See “NTT broadband fiber optics outshine ADSL,” Asahi Shimbun, 04/04/2007. In Korea at the end of Feb. 2007, the Korean incumbent, KT, had 1.69 million fiber optic subscribers, Hanaro, 930,000 thousand, and LG Powercomm, 590,000, giving a total of 3.3 million FTTH subscribers in Korea. KT recently announced plans to bring fiber to every Korean household by 2010. The U.S., in contrast, had an estimated 1.3 million FTTH subscribers in Mar. 2007. Verizon, a leading investor in fiber communications networks in the U.S., had only 687,000 U.S. FiOS (fiber Internet data service) customers at the end of 2006. See p. 16 of Verizon’s 4th quarter 2006 earnings presentation. For a review of that data, see Nyquist Capital.

[2] Japanese Ministry of Internal Affairs and Communications (MIC), Dec. 2006, as described on p. 12 of Takashi Ebihara, “The Japanese Broadband Miracle,” presentation at the Information Technology & Innovation Foundation, Apr. 4, 2007.

[3] Ebihara, p. 11, citing NTT East data as of Mar., 2006.

[4] See Asahi article.

[5] From unofficial and tentative translation of Reform toward the Intellectually Creative Society of the 21st Century, Report, May 31, 1994, Goals for the Installation of Network Infrastructure. I’m grateful to Frank A. Coluccio for pointing out this report.

[6] Ebihara, p. 21.

[7] See Ema Tanaka, Minoru Sugaya, Sayaka Shiotani, Evolution of IP Network and Convergence in Japan – Impact of Hard law and Soft Law, presentation at ITS Conference in Beijing, 2006.06.13, slides 23-4 of powerpoint presentation. Ebihara, about 38:20 to 41:00, states that unbundled fiber loops cost about $50.

[8] Ebihara, p. 12.

[9] Ebihara presentation video above; watch from time 38:20 to 42:10.

[10] See Verizon Communications’ FiOS Briefing Session, Sept. 27, 2006, pp. 24-5.

[11] Ebihara, p. 10.

Japanese bandwidth prices in comparative perspective

In an infoworld article entitled “Government policies add to Japan’s broadband success,” Grant Gross led with this news:

A wide-ranging government policy on broadband and healthy competition among providers gives Japanese customers greater speeds at a much cheaper price than U.S. customers pay, a Japanese telecom executive said Wednesday.

Japanese customers pay about US$0.70 for each megabit per second of bandwidth, compared to $4.90 per megabit on average in the U.S., said Takashi Ebihara, senior director of the corporate strategy department at NTT East Corp. and a visiting fellow at the Center for Strategic and International Studies, a Washington, D.C., think tank.

In an article in Silicon Valley Watcher, Richard Koman had a similar article headlined, “Why broadband is 5x cheaper in Japan.” Government policy is undoubtedly extremely important for the communications industry (and government bureaucrats deserve much more credit than they usually receive). A comparison between U.S. and Japanese bandwidth prices can be easily used to support conventional views about government policy and competition. Such a comparison can also be ignored if more convenient for a particular point of view.

Ebihara’s presentation was much more interesting than these news reports indicate. Ebihara actually compared bandwidth prices across twelve countries. Moreover, he cited a source for the data quoted above. His source was ITU Internet Reports 2005.[1] The table below includes all the relevant data given in that source. Thinking about policy and competition with respect to this set of countries and the range of prices that exists suggests that bandwidth prices are not strongly correlated with objective industry structures.

Internet Access Prices Per Megabit
Country or Region US$ Per Megabit
Japan 0.70
Korea (Rep.) 0.80
Taiwan, China 1.80
Iceland 2.00
Sweden 2.50
United States 4.90
Netherlands 7.30
Finland 7.30
Hong Kong, China    8.30
Canada 10.50
Macao, China 11.60
Belgium 12.20
United Kingdom 13.50
Singapore 15.90
Israel 32.50
Denmark 32.70
Switzerland 33.50
France 36.70
Norway 62.60
Austria 65.10
Source: ITU Internet Reports 2005

NTT’s current broadband service prices do not have a consistent bandwidth price level. ADSL has a price per megabit about three times higher than the price per megabit for Fiber To The Building (FTTB — used for multi-tenant buildings). Fiber to the Home (FTTH) is about two-thirds more expensive than FTTB. NTT’s ISDN, on a per megabit basis, is about two thousand times more expensive than its FTTB.

Current NTT Internet Access Services
Access Service Nominal Bandwidth Price (JPY) Equiv. Price USD USD per Mbps
FTTH 100 6,700 57 0.57
FTTB 100 3,950 34 0.34
ADSL 47 5,590 48 1.02
ISDN 0.064 5,200 44 687.50
Source: Ebihara presentation, p. 10

Bandwidth is more meaningful as a technical characteristic of a widely available service than as a good that users individually purchase. Most communications service users have little understanding of the concept of bandwidth. Most communication service providers do not guarantee the bandwidth of services purchased, nor define clearly what the nominal bandwidth of the service means. Moreover, the bandwidth of a “connection to the Internet” is no more meaningful than the bandwidth of a “connection to connections”.

A communications service business can be insightfully divided into two important activities. Building more capable communications networks and migrating users to them is one important activity for a communications business. In Japan, that is what NTT has done in shifting subscribers from ISDN to ADSL and then to fiber. Acquiring funds is another important activity for a communications business. Prices per megabit do not provide a good connection between these two aspects of a communications business.

OPLANs provides a useful alternative perspective on bandwidth prices. OPLANs emphasizes charging for access, not bandwidth. Thus an OPLAN is meant to be:

a network of truly ‘broadband’ capacity – i.e. where the bandwidth capacity is dictated by nothing other than physical characteristics of the deployed technologies [2]

With an OPLAN, users get to use as much bandwidth as they can. With modern fiber optics, that’s very high speed without any price. Moreover, that doesn’t depend on any particular national government policy, nor depend on competition.

Notes:

[1] See Taka Ebihara, Understanding the Japanese Broadband Miracle, p. 6, citing ITU Internet Reports 2005, p. 15.

[2] Malcolm Matson, “So What is an OPLAN?

new sports stars

Steve Outing observes:

For years, sports enthusiasts have read about their sports in magazines, mostly — with advice and celebrity profiles written by professional journalists and freelancers, and the occasional athlete. But what we’re seeing with the EG sites [here] (which are primarily about climbers/bikers/runners/et al sharing their own stories and images) is that people like being the writers and photographers themselves, and viewing the amateur musings of fellow enthusiasts who they can interact with easily and directly.

Some recent research is consistent with this view:

Advertisements featuring endorsements by celebrities such as David Beckham are less effective than those featuring ordinary people, new research suggests. This is because keeping up with the Jones’s rather than with famous people is the main motivation behind many people’s choice of which product to buy.[1]

Personally, I’m keen to keep up with my brother Dwight. But he is, in fact, a celebrity.

Note:

[1] Quoted from University of Bath press release (separate paragraphs condensed). The research that is the basis for this press release seems to be Torsten Tomczak, Daniel Wentzel, and Martin Brett, “Consumer Susceptibility to Normative Influence,” forthcoming in Journal of Advertising, 2007. While that journal bills itself as “the premier journal devoted to the development of advertising theory and its relationship to practice,” not making the paper and associated data freely available on the web makes this research less credible.