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APNIC 24 APNIC Fees WG

Draft

Wednesday 5 September 2007
1430-1600

RANDY BUSH:

If people could come to the microphone, please use the microphone and because this is an important meeting, the transcribers have to be upstairs with the general session. They're going to transcribe it tonight from the recording on the microphone, so it is very important that you say your name before you speak, because they won't be here to recognise us, OK? For the meals, morning and afternoon tea is outside the crystal ballroom, OK, so it's, I think that means it's moved now to outside where the general session has been instead of back where the lunch was. OK? Lunch will be in the Terrace Plaza, next to the ballroom. OK, MyAPNIC and the policy flash demo all day at the APNIC services lounge Helpdesk, so, you know, and I think tomorrow also, so, you know, APNIC is trying to show some of the services and facilities they offer us. There's a feedback form, it's on the website. It's located in the local information category, OK? So please do it and, to encourage you to do it, there will be a prize, an MP3 player. So please submit it before 1600 Friday, before the end of the AMM on Friday. And because at 1600 the lucky draw will happen and you could be the winner.

OK, also, um, the reception tonight is the colour and culture of India. It will be again at the Terrace Plaza, that wonderful tent that they built for us. If you didn't see it at the beginning of the week, all the structure going up to build it, etc, etc. Even last night, we went out because this did such hard work building that place and it's very pretty. So out there in the beautiful colours. And that's the administrivia. OK, Ming-Cheng Liang and I are the co-chairs of the Fees working group. This is the Fees working group meeting. All knives and guns should be left at the door and if you are missing a sense of humour, the Secretariat is prepared to hand it out. OK? Because we're here to try to constructively move forward in our organisation and in our region. So that's why they put a silly person to do this is to try to maintain a sense of humour.

Agenda Review

OK. Here is the proposed agenda. It has the agenda review - in other words, if somebody wants to change the agenda, now's the time to talk about that. Then, if you're on the meeting mailing list or are watching the website, you'll know that Executive Council of APNIC has an interim fees proposal to try to get us through the next year or two while we analyse the serious and difficult and complex part of our organisational relationships within the region with the NIRs, with the general members, and within APNIC and the world as we transition to IPv6. OK? In that, there's a 7% proposal and the Secretariat will explain where that magic number comes from. 7 is a lucky number in our culture so we just accept it but maybe other people would like to know some detail about it. Then there'll be the microphone but specifically just for questions about that. In other words, we'll have the discussion in item six, it's just if some part of this was not clear to you, you just want the Secretariat to say something, "Please explain, I couldn't understand slide number three." Then KPMG was asked to do a review of the fees. Michael Hiller was going to give the report, but he had a serious illness in his family, so I'm going to give his report for him. OK? And I will try to make it brief. OK? Then the serious open discussion. Then, just to get a feeling of the room on the fees proposal, and then where we're going with the Fees WG and then let's hope we get some time to start discussing the really deep, long-term issues, unless we get hung up on this stuff. But, in my opinion, the deep, long-term issues are, you know, what we should get to as soon as possible. Would anybody like to suggest changes to that agenda? I will not sing or dance, so none of that. OK.

First, for the - speaking for the EC's proposal, we will have the Treasurer of the EC, which is appropriate, to speak for a financial proposal, from the EC.

KUO-WEI WU:

Do you have a microphone?

RANDY BUSH:

Next you're going to want a pointer or something.

KUO-WEI WU:

Me? I don't think so. That's good enough. First of all, I'll just repeat, I'm the EC Treasurer to give you a report, particularly for the interim APNIC fee structure adjustment. And I believe all of you already see the proposal on the website. Just over there, it's www.apnic.net and in the meeting is the text file there, so I think all of you know that. But, for my presentation, basically, I just try to explain the historical reason and some of the issues there. And hopefully I think we can have a more chance of EC to understand the members' opinions in this working group. Of course, at the same time, we will do in AMM also.

First of all, let me explain about the historical reason for the fee structures. If you remember, actually, in the 20th APNIC OPM meeting in Hanoi, actually that is the very beginning with talking about fee structure issue in NIR. And then, in Perth, we also have fee structure discussions and then following on, you can see in every APNIC OPM, this is - it might be the fifth one, it's not the first one, it's already go for more than two years. And actually, the fee structure working group is formed in the 22nd APNIC OPM meeting in Kaohsiung and that is what is Randy and MC Liang would be elected as the chairs of the Fees working group. And then for the EC and the chair of the working group, we are veil serious discussions about this one, so we actually invite KPMG to help us to do the financial analysis and we have a meeting in Singapore and, after the Singapore meeting, that is how this so-called interim proposal is coming out.

OK, and that's go back to the reason why this fee structure is coming out, is of course is the very beginning in Hanoi and then the reason is because we see particularly this year, the APNIC will be come out negative deficit budget and I believe we already present that in the APNIC in Bali meeting.

And for so long, we tried to find out a solution to how we can maintain this issue. But before we start talking about this issue, I'd like to let you know the background, why the deficit came from.

Well, here is the situation. You can see the - I need a laser pointer. Thank you. You can see this is... thanks. You can see this actually is the currency exchange rate between the US dollar and the Australian dollars. Because you might be knowing that our membership fee is based on the US dollars, but our office, APNIC office, is in Australia. That means our expense is based on the Australian dollars. So, for example, in - from the year 2001, there is almost, like, a 0.5 - like one US dollar is equal to two Australian dollars. But, as I checked, on September 4, the exchange rate is one Australian dollar equal to 0.82 US dollars. So you can see the currency depreciation in the US dollar is kind of very critical for APNIC.

And, at the same time, you can see, if we look at the IP allocations, actually APNIC in the last year, in 2005, we actually is the second largest IPv4 allocation region among the five RIRs.

So here is a reason for three in the discussion, OK. This is not present my personal. It's the EC in the fee discussion. The first of all is exchange rate variations. That is what I mentioned about, it's a big change in the US dollar depreciations. The second is our membership fee since 1996 till now, we have no any changes. Of course, I didn't impose say we must have an increase, but I just make a fact that is something that happened in the 1996 till now, we have never changed about the membership fee. Also, I think, in the past several years, our membership of the APNIC is growing. I remember in the very beginning in the year 2000, I think the APNIC members is less than 1,000, but right now we are very close to 1,500 to 1,600 members. Is that correct, Paul? Something like that. So our membership actually grow almost at 50% in the last two or three years.

OK, here is a proposal. You can see that in the text it's on the website. I think you are coming to this working group, this proposal is there. Basically the proposal have two modes in there. The first one is that we try to match the APNIC income and expense in the same currency. That means hopefully we can change the income, your membership is used to the US dollar and go to the Australian dollar so we don't need to sacrifice or suffer the currency exchange rate or depreciation issues.

Second one, actually in the last two years in NIR in all the members, including the working group and the EC, frankly speaking, we still didn't find a long-term solution yet. Well, somehow, we don't have a consensus on a long-term solution yet. But, based on the deficit budget, so - in the proposal, talking about is an interim membership fee change. So basically, in the proposal, there is two items there. So please read very carefully. There is two items in this proposal. And I think the numbers also show in the proposal. I think you see the advantage and disadvantage and I don't think I need to go further. And basically, here from the EC point of view, first of all, of course, we want to make stabilise the APNIC financial position. Now we regard for the membership fee, at the same time we will be help or push the APNIC office to try to make the budget in the balance as much as we can.

The second point of course that we still need to work on the long-term solution.

The third one is listen to the decision for this proposal from all members. That's mean whatever the members decide and we will work with the APNIC office together to work out how to resolve better this proposal pass or no pass, we will be still continue working with APNIC office.

So I think that is my presentation. Well, I think I leave to Randy, the chair, to go on for the next.

RANDY BUSH:

Hello? It's already on.

I had, if you remember from the last meeting, other proposals instead of doing did in Australian dollars, we should move the Secretariat to Hawaii and then did would be in US dollars and it would all work. But I wish to withdraw that proposal because I'm moving from Hawaii to Tokyo, and putting APNIC back in Tokyo is just a little bit too much of a step back in time. So I'll withdraw that proposal. Though it would be nice.

Let's see what we can do here. Can you help get me to the other presentation? Oh, wait. No. Pardon me. Would one of you folk kindly - there are two parts to the EC's proposal, one part which the American idiom is no-brainer, i.e. we should not have to think about it, is to have the income and the expense be in the same currency, Australian dollars. The other part is saying 7% flat increase. Where did that number come from? Is it magic? So the Secretariat will give us a small explanation as to where that 7% comes from.

APNIC cost increase in 2007

PAUL WILSON:

OK. Can you hear me? Can you hear me like this?

OK, things do move a bit fast around here. I went off to have lunch with ISPAI, the ISP Association, and then I came back from lunch and found I had a presentation to do, but luckily Geoff and - Geoff Huston and Irene Chan just worked on putting together this summary of the fees adjustment in a form which was requested. This is really information which has been taken out of the budget discussion, the budget report, which was presented back in March, but it hasn't been, it hasn't been presented directly in this way in connection with the fee adjustment. So that's what I'm doing here. The idea is that, um, there was a request for just a clear explanation of exactly what this 7% was about and where the, where that extra allocation of funding was going to actually go in terms of APNIC, APNIC accounts.

So what it - as it says here on the slide, the revenues for APNIC in 2007 are according to the budget, going to be increasing by 11%. The expense is increasing by 18%. That represents a 7% increase in the costs over expenses in the year. Now, that's according to the 2007 budget. That budget was actually subject to a lot of discussion at the EC level, actually going back to about October/November 2006. It was sort of negotiated back from a deficit that was somewhat larger than was finally approved. But that deficit of 7% of cost over expenses represented about AUD 490,000 - sorry, US dollars, it's certainly the largest, it's the only substantial deficit that we've actually had an on APNIC annual budget ever. It's our first substantial loss at all, in fact. So the reasons for the - and the reasons for that increase have got to do with exchange rate fluctuations as well as some adjustments to the expense budget and so, as requested, the breakdown of the distribution of that increase is given here. So the top item, the top-line item in terms of where those funds are going is staff salaries, which account for 48% of that increase. Now, the reason for that is staff salaries at APNIC had actually, over the years, over some years, they had fallen below industry standards in the actual, the staff turnover rate at the Secretariat was increasing and so, in 2006, I think we lost, we lost more staff than we'd lost previously and analysis of the salary position at APNIC revealed that we were down below industry standards. So the Hay Group and International Consulting Group gave us a report about where the salaries at APNIC should be.

It actually showed that we were pretty substantially under industry standards and so, during the year, we budgeted for increases that bring us up closer to industry standards, not in fact up to where we might want to be ideally but in any case, that staff survey was the salary survey was approved by the APNIC - and supported by the APNIC EC, as was the provision of some additional funding towards staff salaries. Now, there were numerous other - that's nearly half of the increase in total revenues. There are numerous other line items here, which have also increased. 9% of the increases has gone to travel. The travel requirements of APNIC are increasing, particularly with the IGF, the Internet governance forum, with demand for more training, with more interaction with and among the RIRs and more APNIC liaison staff, who are travelling within the region in particular it meetings such as, such as this one in India, but also elsewhere in the, in the region as well.

Next on that list, 6% of the total is personnel. 6% is professional fees, with I are some extra consultancy costs. Meeting and training expenses are up and account for 5% of that increase. Depreciation in the value of assets is next at 4%. Networking and communications, 3% and 19% is - the remaining 19% is just distributed across a whole range of other activities on the accounts. All of those activities being less - accounting for less than 3% each, so that 19% really is a lot of small increases.

So that, I believe, is the information that was requested. Just for, for information, though, on the overall profile of where APNIC expenses go, you see something actually quite similar in terms of the top-line items going down to the, down to the lower-line items in terms of proportion of total expenses. So salaries at APNIC account for 45% of the total expense budget. Travel is 11% of the total budget. Personnel expense is 6%, professional fees 5%, it nearly mirrors exactly the list previously. So the increases, the allocation of that increased revenue - the increased expenses, sorry, have been distributed across pretty much in accordance with the major expense areas across the overall expense profile. So that's, that's the sum information. I think the previous slide is really the one that was requested, which is, again, exactly where - of that increase in expenses, where have those expenses been allocated.

RANDY BUSH:

Just, just so I'm positive I know what I'm looking at -

PAUL WILSON:

Sure.

RANDY BUSH:

That column totals 100% and that is 100% of the 7%?

PAUL WILSON:

100% -

RANDY BUSH:

In other words, this is how the 7% is distributed?

PAUL WILSON:

The 7% is $491,000, you're quite right. So this represents the distribution of that $491,000, yes.

RANDY BUSH:

And -

PAUL WILSON:

I don't want to be talking about percentages of percentages. That's why I was trying to avoid that. It gets confusing.

RANDY BUSH:

I understand. And the exchange rate difference is - you'll just peg it and this handles it?

PAUL WILSON:

Well, the reason for the selection of the 0.789 exchange rate and the 7% was to bring 2007 budget back to a balanced figure. Now, that 2007 budget was approved to produce a, a loss, as I've described, and for want of other particular reasons or particular figures to be selected, we chose or perhaps proposed that the appropriate level for APNIC activities at this time as far as we can tell is the level of activities approved by the EC in reviewing the budget of 2007. So that's not to say anything about the future but this is an interim adjustment and the rest of it is in the hands of the EC, I'd say.

RANDY BUSH:

OK. Thank you, Paul. Um, if there are questions, can we do them, just after the next one?

PAUL WILSON:

I'm happy.

RANDY BUSH:

OK. Thank you. I just have to say that I don't know much about the internals of APNIC, though I do know that, um, salaries were seriously out of whack. Because I know that a good engineer was lost to a university for significantly higher salary. When that happens, red alarms should be going off in your head.

OK, let me see if I know how to -

PAUL WILSON:

Sorry. That's my machine.

KPMG report on review of fees

RANDY BUSH:

This is your machine. Can I have that? Please, will it reach? No. OK, hang on. We're going to go back to back to mine. Sorry. Could tell I'm not in marketing. But you know that all along. May I presume that stuff will go away?

(Pause)

OK, you can tell I'm not from marketing, but now I'm going to be from an accountancy consultant. I am simulating Michael Hiller from KPMG who, as I said, due to family circumstances, cannot be here.

I'm going to discuss the fee structure thing, overview the short-term proposal - you get to hear this three times - and the long-term considerations which are, in my opinion, the real work we need to get to that will be hard.

OK, the EC has commenced a process to review the entire fee structure for the long term. There was a sing poor EC fee structure meeting and it was discussed and, because the financial situation was not good, we're running at a deficit which, when the EC is responsible for the finances, that means they're not doing their job. Right? So running at a deficit is not what they are supposed to do.

So how to fix the problem in the short term? And then how to focus on the complex issues, which will take time. So there's been a narrowing gap between revenues and expenses. Expenses have been catching up with revenues and they've started to win the race. With APNIC going to make a loss for the first time in 2007. The exchange rate movements between US and Australian are a significant part of that loss. So the EC is proposing at this meeting to recognise that the issue, the real, underlying issues, role of NIRs, role of large members, making fees more fair - and everybody has a different idea of what's fair, who should pay more, who should pay less, etc, etc - I, of course, think users like myself shouldn't pay anything, but unfortunately everybody else has the same viewpoint. So temporarily freeze it in AUD and increase by 7% and then go for the long-term issues. OK?

So, again, projected loss, 2007. Significant part of the cause was what happened with the exchange rate. As you can see, here, the blues were winning and, as that goes up, the blues start to lose, even an engineer can figure that out. As Paul has said, well, no - membership fees make up 75% of the income. OK? So fooling with this stuff will not have significant effect. I'm sorry, I'm blocking the screen for some people, you get two. OK. So I'll take a turn and do it here. So fooling with this stuff will not have significant effect, OK? If you want to have effect, you do it there. OK?

Expenses, as Paul has shown, 45% salaries in expenses. The next biggest thing is 'other', of course, because it's 10,000 little things. And so...

KPMG, who are financial auditors and that kind of stuff, looked at the proposal and said, "Yep. Looks financially prudent." In other words, the short-term proposal looks reasonable, given APNIC's financial position. Not to do it exposes APNIC to serious financial risk. So make it in Australian dollars, 7%, and KPMG actually looked in the details of the budget, in the way that Paul has shown, and probably far deeper. I don't know. And do it from January 1, because of the reasons we've discuss the in five different flavours already.

But the long-term issues - and these are the ones that I hope we, as a working group, get to, soon, because they are at the core of how APNIC relates to its members, how APNIC does business, how, you know, the role of all the organisations in the region to advance the Internet in the region. So the impact of v4 depletion, if significant amount of the income of APNIC is allocating v4 from the IANA free pool, and that's going away - that's going to have an impact, a serious impact. OK, one of the service requirements for v6 service allocation? I think there's also essentially a lot of technical help that APNIC and also the members who have gone first into v6 can give the community, OK? So what if we do a transaction-based model? OK, for the fee structure, what if it's a load-based model for the fee structure? You know, we started talking about the RIPE model, which decayed in time, OK.

What if the EC changes the priorities for the services and activity as soon as right? For instance, RIPE has a large component of research and building research infrastructure globally and running root servers, etc, so should that be increased? How much - should more services multi-language be done, etc, etc? So what are the services? Possibly, more transparency, more communication with the members, more understanding of the membership, of the details of the APNIC internals by transparency of APNIC's budget, etc. Same thing goes to the operation of the NIRs. Should they be more transparent? OK? And then, of course, there's the NIRs and confederation members, what do they do? How can load be moved between NIRs and APNIC? And how does that affect the budget, fees and the balance of finances? These are tough issues. And when the, um, EC met in Singapore two months ago it was, to discuss fees, it spent hours getting into these and then, at, like, tea time in the afternoon, looked each other in the eye and said, "We are not going to solve this this week." And that's when this interim proposal was developed. What holds us for the couple of years that it will take to actually address the real, underlying physics and business and social issues. OK?

So, um, all these things were discussed in the EC meeting in Singapore. Those are just, you know, some ideas an activity plan and currency and escalation process. And currently the per-address for NIRs. What about the NIRs who do other work and strongly help the region? What if we change the bit boundary that we're calculating the per-address fees on? You know, what if it's a linear - not linear, what if it's a continuous formula? What do we do lower-position economies, you know, the developing cups? What about the RIPE - so the EC started to discuss these things. The community should be discussing these things. Or, in my opinion, the community should be discussing these things. Because I know there are strong feelings and many people have many flavours out there. And now you have suffered through me being an accountancy consultant.

And now, um, let's see if I can find the other presentation. No, the other presentation's just the agenda.

So at this point, I believe - I'm sorry. I wasn't set up on this laptop. Even though it's my laptop! Those of you who know me well should be impressed that I can use Windows well at all, by the way!

Open discussion of EC interim fees proposal

OK, so we've made it to this point. OK. At this point, open discussion of all this, questions, discussion, people's feelings and answers. Please remember to say who you are at the mic and you're welcome to borrow this mic, that mic or those mics. And then just how do people in the room feel, but realise that Friday at the annual Member Meeting - and there's been online voting going up till, to this evening it ends or something like that.

SPEAKER FROM THE FLOOR:

This morning.

RANDY BUSH:

OK, so that's ended. Online voting ended this morning and there will be the Member Meeting on Friday and at the annual Member Meeting, we will actually formally make the decision, OK? And so then, it's where we go in the future.

So the microphone is yours.

(Clears throat) Come on. Let's not be shy. I can pick on people.

Let me ask this - let me... there were people who were concerned about understanding where the 7% came from. Was the 7% question addressed usefully? You're deciding? So we'll take a short break? Let's take a short break because, also, when we had the working group chairs' meeting, we realised that language is a very big problem. And so we're going to try and change how a couple of the working groups actually do things so that people have time to go off and discuss in their language and then come back to the meeting.

so let's take a five- or ten-minute break. This is important stuff.

(Break)

OK, so there's a very interesting discussion that's happening here that I think should be shared with the rest of the class. So if Izumi-san and Geoff-san - ah, good try, Izumi-san. No, for two reasons. Number one is I think the discussion between you is interesting but number two is the camera, they would like it on camera and the camera faces here and you wore your best clothes. And you too, Mr Huston. And maybe I'll start it with - Izumi-san said, "OK, we kind of see where it's going, where the 7% kind of is going, but, um, what's the underlying physics behind those? Was there a look at costs to try and get them down? And how much of it is changeable and how much of it..." I should not speak for Izumi-san, any more.

So, and Geoff started to answer and I'm sitting there listening and I said, "I think everybody would be interested in this discussion, so... if Geoff and Izumi-san can kindly continue.

GEOFF HUSTON:

So this is a conversation that Izumi and I are having that all of you can also listen and participate in. And the question, really, was why 2007? Why did the sort of 7% come up now? Why were we sort of looking OK in previous years? And what happened this year that was abnormal?

So the first thing is to understand that, in the APNIC budget, we are actually a very people-intensive operation. If you analyse any business, you find that you spend your money in equipment, on capital, and you spend your money on people and you spend your money on services that are brought in. And if you understand your own business, you'd actually know straight off, "I spend 30% on staff, 50% on capital, 20% on services," whatever. What does APNIC do? We spend 51% of what we spend on our staff. So we are a very staff intensive, we're a people intensive company, which is actually reflective of being a service delivery organisation, particularly multicultural, because we do have a lot of service delivery with people. So 51% of the way we spend money is on our staff.

Now, for some years, we've actually been quite tough on our staff salaries. Yes, we do performance reviews. Yes, we do a certain amount of increments, but we're actually getting over 2005/2006, we're actually getting staff resignations at a higher level than we've been used to. For a staff of 50, in a technology area, what's the typical turnover? Well, if you're doing really well, you'd actually expect two or three. If you're getting more than five, if you're getting 10% turnover, something's going on. Don't forget as well, that we're a very specialised organisation. The skills actually require significant training. You can't just buy someone and get them there. So we actually make an investment in our staff and we're underpaying. We conducted an external review with a consultancy and we actually got industry benchmark salaries for the kinds of work we're doing and found that consistently we were underpaying and, on exit interviews with our staff, we're actually finding that the salary was one of the major reasons why we were losing the staff. We just weren't able to respond to say, "Look, you know, stay with us." They were going, "Look, you're just not paying. We've just had it with you." So we addressed that in 2007. Now, when you raise someone's salary, it's not for the year. That's their salary thereafter. So once you do that and re-establish yourself back at those norms, then that's an ongoing commitment. So, yes, we have increased our commitment to the staff in order to retain that level of expertise. We need - and this is not natural in Australia - we need staff with strong language skills in the Asian area. We need the ability to be able to travel almost immediately wherever we go. And for many folk with families and so on, you appreciate travel is hard. We need multi-language skills and we need them at a very high level of technical ability. This is not just, "Hi, I'd like a cup of tea. It's very nice knowing you. Goodbye." All of that is a considerable investment and retaining those staff, we think, is critically important. So, as a service delivery organisation, staff's excellence. That's 50% and that's 51% of that change. We're investing in people because people are our business.

What about the rest? The big one is travel, 9%. You may have seen the amount of money you spend to hop in the car with petrol, if you have one, has gone up a lot. If you think that's a lot, think about the plane. The cost of a person in a seat on a plane has gone up, the seat miles, and it's gone up way more than 9%. We've actually tried to reduce the seat miles we're doing. We've actually tried to make sure that our costs aren't they level of the escalation of costs of the plane industry, but we're still facing what everyone else is facing. If you came to India five years ago, you would have spent less money just on the plane ticket in current dollar terms because the price of fuel has doubled, hasn't it?

IZUMI OKUTANI: :

Yeah.

GEOFF HUSTON:

It costs me heaps to fill up my car. It's only a little car. That's part of it. So that's the major reason. The other bits - professional expenses, consultancies. We're actually doing a bunch of far more complex work. Now do we train our staff and make long-term investments? Or do we simply try and kick the expertise in? We're doing both but we are kicking the expertise in. We're doing consultancies on our salaries. We're doing consultancies with KPMG on the whole fees issue. We're doing consultancies over resource certification. We're pulling in expertise because some of these are one-off jobs and we either spend an enormous amount of staff time, skilling them up, doing the work and going, "Well, that was good, but so what?" or we actually do it as a professional consultancy. So, yes, we are trying to, if you will, manage the job smarter, but that means some of our expenses go up as we try and sort of do the one-off things. That's the major items of the 7%. That gets you up to about 60%, 70% of it. The others -

IZUMI OKUTANI: :

I'm pretty fine with the rest, unless everyone else wants to listen to the details, but, yeah, OK.

GEOFF HUSTON:

OK. So when you were asking, which started this conversation, "Show us the breakdown of why," I suppose, I've elaborated on what Paul said from my own sort of understanding of this and sort of the question back is, "Is that the kind of answer you are anticipating? Or do you want a different style?" are you after something else?

IZUMI OKUTANI: :

Right. Um, yes, I think maybe the way we do it in Japan is a bit different and we might be a bit picky compared to other countries. But usually when we try to propose a fee raise, we first do analysis of what would be the cost for the next two years, two, three, years. It's an interim, so we understand that, but even for the interim, we do the analysis of possible future costs and then the next step would be we look into if there are any areas that we can reduce or reuse the costs so that, you know, we can keep the current fee rather than simply raising it.

But the impression we got from the explanations from the Secretariat was that - we really sympathise with, you know, raising the staff salary, we support the idea and we also support the idea of raising the fee itself. But we get the impression that in the year 2007, it just happened that the expenses of the Secretariat raised. So that's why, let's fee the fee raise without doing analysis of what would be the kind of expenses that APNIC will be needing in the next few years or the expansion of activities or things like that. So, it's like, um, the process is - we are concerned about this process. Has this been done in APNIC rather than saying, "Oh, the cost is going to rise so let's just raise the fee"?

GEOFF HUSTON:

Um, I suppose there's two parts to the answer. Because when this budget was considered, there was no fee increase. This was a budget at a fixed level of fee.

IZUMI OKUTANI: :

Yep.

GEOFF HUSTON:

And the real question that the EC had to focus on was what's the size of the operating deficit you are prepared to run with, if any? So we actually prepared a number of budgets for the EC and, as part of that EC process, there were budgets that balanced and there were budgets that really did spend more than their anticipated income. And we told the EC the rationales behind each of the budget scenarios. Underlying the budget that the EC selected, where we had the deficit, was the investment in staff. Because, in order to achieve a balanced budget and actually take out $492,000 US in the year, the scenario that balanced actually had us removing staff.

IZUMI OKUTANI: :

Oh.

GEOFF HUSTON:

Now, the issue was we've made an extraordinary investment in our staff. We're proud of them. They do a tremendous job. It does take some time to get them there. If we let them go, we haven't just lost that salary for the year. We've actually lost someone who we actually thought was going to be really valuable for the next five years. So that dropping a person is not dropping them one year. It's dropping $500,000.

RANDY BUSH:

Their training.

GEOFF HUSTON:

Their training, their investment, their future productivity. When we put that to the EC in Bali and discussed that, the EC reluctantly - and I will say reluctantly - approved this kind of budget because of our investment in our staff, for no other reason. Did wasn't that, "Oh, well, you know, that's fine. Life as usual." It really was, when you analysed the options, if you didn't increase the fees, if the work of the Secretariat had to continue, the only way we could do it was to drop services and, pause we're service intensive, release staff. And we didn't want to go there. And the EC didn't want to go there. So I suppose the issue was that scenario and the scenario of investigation was certainly done across November, December, January, February. It took us that long to approve the budget because of the issue of saying, "Yes, you know, we're going to have to confront operating on deficit this year and the rationale about our investment in staff.

IZUMI OKUTANI: :

Thank you very much. So on a personal level I'm convinced from Geoff's explanation at the moment. Some of the discussions that went on within our staff when JPNIC was at, we assumed maybe there was some possible expansions in APNIC activities, doing some additional - I don't know - outreach activities or projects or whatever. So if that is contributing to the increase in the costs this time, we felt maybe it should be reviewed by the members if this was worth going through the additional expenses and things like that. But from explanations that you've just given, it's actually the staff cost, so that would not be reduced unless, as you mentioned, reduce staff or reduce salaries of individual staff. So I think the explanation given at the moment makes sense but I don't know if you have any issues, Arano-san, Maemura-san?

RANDY BUSH:

So you can be on television, please. Come up here, so you can be on television.

GEOFF HUSTON:

It's just a conversation but many people are watching.

TAKASHI ARANO: :

OK, as far as I understand it, one of the reasons for this is that members are demanding more service and more global service. Is that right? Yeah, someone say so.

GEOFF HUSTON:

I could correct that. We'll have to share the microphone. In order just to do what we did in 2005 and 2006 and keep the staff and keep their expertise and keep them employed by us and not lose them, basically that area of increase, it wasn't we were hiring more staff to go and do more things and there was a discretion about saying when and if we should do these additional activities with additional staff. The real issue was that over the years in our efforts to actually match and budget and expenses with a declining US dollar, we have taken it out on our staff and the increments we were giving them in their salaries didn't match the increments in the industry at large. So while when they were hired, they might have been getting the same pay as someone at a university. For many of the staff who were looking at the situation at the end of 2005.

TAKASHI ARANO: :

Yeah, I understand these kind of things. But someone said, one reason, members are demanding more, want to keep the current quality of service.

GEOFF HUSTON:

Well, it's a current quality of service.

TAKASHI ARANO: :

This should be a choice or option for members.

PAUL WILSON:

It's a good question. We do have through, particularly in the last member survey, which the results of which were published March of this year, there is plenty of demand for additional services and improvements in services to various kinds. In fact, the first budget which was presented to the EC back nearly a year ago, the first draft budget, was considerably larger and had a considerably bigger deficit. So the process of negotiation which we've heard about which happened and the process of providing that budget actually eliminated $300,000 worth of contract programming which was to go in to the set of vocational authority work and that was something which was put off, put out of the budget, probably for good reasons because as it happens, in the meeting that happened about the CA, there were some questions about how quickly and how to what extent we should be developing that activity. So that was probably the right decision on the part of the EC to ask for that to be removed. We took those expenses back as far as we could without actually sacrificing specific existing services. Staff being the service deliverers, that's right.

RANDY BUSH:

I'd like to steal the mike for two things. Number one, does everybody know who these people are, just for quick? Takashi Arano and Izumi-san are from JPNIC, OK? And Geoff is actually a scientist at APNIC and is on APNIC staff but is also the executive secretary of the exec com which is the governing body of APNIC and Paul is the chief executive officer of APNIC. And I'm a research scientist at IIJ, an ISP in Japan. Just so everybody knows who's who. The second thing is, my understanding is two things. Number one, is there is no substantive change in services, even though I personally have the opinion I wish they'd put more effort in to the CA stuff, but that's OK. Number two is that I think the discussion of should services be reviewed? How should they be reviewed?

How we as a community make these decisions are for the long-term discussion, not the short-term discussion. OK. So, as long as, right now they say there has been no significant change of services, I'd rather not go in to that much. I think a significant neutral point Geoff made in response to your question, Izumi-san, which was very clarifying, is why in 2007 and then it's going to continue is because the salary increase to catch up with industry is now and then things normally progress. When you combine that with my seeing from the outside, whatever it was nine months or six months ago, I saw it happen and I went to Paul and said, "I just saw you lose a significant engineer to university for salary. What is going on here?" That's how I ended up here because, you know, that rings all my alarms.

TAKASHI ARANO: :

This is not right or wrong issue. Rather this is a question and issue of how much we are convinced of or how we can report to our company? In that sense, we need more reason and more concrete explanation from the Secretariat of EC. APNIC is making a lot of effort to reduce this kind of cost. This is the one thing.

RANDY BUSH:

I'm not sure I want APNIC to be reducing services at this critical time in the industry and therefore I'm not sure they can reduce costs. But let me say this - may I suggest if you think there should be more detail or other flavour or you want strawberry or whatever, that maybe we should get together with the Secretariat and Irene, etc, this evening, or let's discuss it.

TAKASHI ARANO: :

We don't disagree.

RANDY BUSH:

We're engineers. I'll tell the story. Arano-san and I used to work together at NTT but at NTT I was very protected. I did not have to do all the spread sheets but I know that culture. And I also, after that, worked for AT&T. AT&T is the American culture and it works very differently. AT&T died. NTT is still there. So I'm working in Japan. So you have my sympathies but I think we need to work through it in a way that does not have us micromanaging APNIC but makes more visibility and understanding. Though, I would note that...

GEOFF HUSTON:

Can I make a comment?

RANDY BUSH:

Of course you can make a comment. Part of this is the EC's job. And maybe there are EC members in JPNIC who could help with the communication and transparency?

GEOFF HUSTON:

I'd like to get back in to quite explicitly saying what we are and how we do it? We're a service delivery organisation and we do it with people, not machines, people. Now, if we had to reduce our costs, it's going to come out of people. So, firstly, we're going to have to get rid of people. That's going to hurt. What about the people who are left? Because ultimately, you've got two choices. The people who are left, either do what they were doing before and we do a worse job. I don't know about you, but when I go to work, I don't go to work to do a bad job today. If that was my intention, I'd stay at home and go and get another job. No-one works badly by intent. We all go to work to do a good job. We all want to do the right thing. If any of you have been inside businesses with staff cuts - and I've done it a few times working for a telco - what happens is that the folk who are left carry the burden. The work hours go up, 40 hours, 50 hours, 60 hours. People start covering. And we don't need that in a service delivery organisation.

TAKASHI ARANO: :

I don't intend to reduce cost structure, we need to know that actually. We need to know that you have some effort to be discussed. That's a big reduce in costs. That's a big difference.

RANDY BUSH:

I think I can help. There is a difference between transparency and micromanagement. Transparency means I'm trying to understand it. Micromanagement means I'm going to do this. I think Arano-san is saying a little transparency, not micromanagement. Is that fair? OK. So I think the question we need to work on is, you know, what will make, what kind of things do you want to see to make you feel comfortable? And excuse me for using Arano-san as the representative of that desire.

TAKASHI ARANO: :

APNIC is a non-profit organisation. APNIC should have some responsibility to expand.

RANDY BUSH:

I think the RIRs in general have a monopoly on integers. And this is very strange.

TAKASHI ARANO: :

Suppose government is going to decide a tax, OK, they don't decide the tax, the amount of tax according to the costs, right?

RANDY BUSH:

Do you really want to know how they do it in my country? I don't think so.

IZUMI OKUTANI: :

I assume what you want to say is you first have plan and then the fees or the budget comes afterwards and not expensive comes and the fee comes to match the expenses, that's the point, right? Is that right, yeah? And I think already Geoff mentioned in his earlier response to me saying that's actually not the case. Well, APNIC has been facing problems with staff salaries and there's been analysis and there's been consultant to analyse. So that's already done. So maybe not now but then later I'd like to ask you what kind of possibilities you think areas APNIC can further look into to see if there are possibilities of further reduction in costs.

RANDY BUSH:

Reduction cost is back to the micromanagement sector. The transparency that I think we need to address. But I would note that the method of this hump - this is a business - and the governing structure of this business is the EC was supposed to do the budget and went through much effort and did so. So in my culture, we either assume they did a good job and were competent and ask for a little more transparency and we say what we'd like to see maybe, or if you didn't trust 'em, you would fire them. Right? But you expect the EC to do that job and do it well. It's still valid for the members who are like the stockholders to also say, "Hey, this is the annual meeting. Could we have a little more transparency in this area and understand what the physics were?" Because we're in this business with you, so we want to understand the physics of this business.

Kusumba, I think, wanted to say something. He should get a try.

KUSUMBA SRIDHAR:

I'm Kusumba, I'm an EC for APNIC. I think the expenses part here is the secondary part. The primary part is that we have a deficit. OK, let's look at it this way. The money that was supposed to have come in to the Secretariat, to meet certain expenses, could not be met because we have a foreign exchange fluctuation and that's how we have received less money. Consequential to that we have slight increase in the expense standard budget. So the question here is that the Secretariat itself has received lesser money due to the foreign exchange fluctuation. If that money had been in, we probably could have been balancing somewhere. So today we cannot balance because we don't have the money that was supposed to be in with us. So, yes, the expenses is a second part, we do understand there has been an increase in the expenses, but there was supposed to be money coming in which never came in.

So that's also something which membership needs to keep in mind. The EC has taken help off KPMG to do a detailed analysis of not just for the short term. The interim was not out of the KPMG, but interim was out of the EC, analysis from the inputs given by the KPMG. In order to see that, the Secretariat is sustained because we cannot be imposing further reductions on the costs, so we cannot be imposing conditions on the Secretariat, "You go down further more, you go down further more", when it's already down. So the interim will actually give relief to the Secretariat and allow the EC and do an appropriate budget for 2008. We have several measures taken like we're going to start talking about the budget from a little earlier than what it is done every other year than what we've been doing. We're going to do detailed work this time for 2008 budget than what it was done for 2007.

So these are some of the intentions of the EC and that's how the interim has actually come forward. As a kind of patch at this moment. OK, there's another story to this. The majority of the economics in this part of the world, if you look at India, Bangladesh and Bali, have actually got benefit of the dollar fluctuation. The money that they were paying to APNIC one year back is more than what they're saying this year, actually. In India alone we had 14% of an advantage. So which means out of 14% actually the number is possibly only 7% of the Secretariat this time, there's still an advantage of 7%. So they benefit out of the dollar fluctuation in this part of the world. So there are different issues here, keeping everything in line. EC has come up with a solution of this interim in the interests of the Secretariat and the membership. And a leverage that gives the EC to come out with a budget for 2008.

RANDY BUSH:

Could I ask that we try to arrange a time to - we're by the way 10 minutes late. So unless somebody thinks, we always make serious progress at this moment. I would be happy if some of us could get together - Arano-san, Izumi-san, some folk from the Secretariat but especially some folk from the executive committee because the EC is responsible for the budget. The EC is who you really are talking to, not to the Secretariat. OK. Che-Hoo Cheng.

CHE-HOO CHENG:

Randy?

RANDY BUSH:

Sorry, could you come up here so you can be a TV star? Yes, but we want you to be.

CHE-CHOO Cheng:

I'm Che-Hoo Cheng, I'm one of the EC members and I want to add one more point to the revenue side. I think you all heard that. You know revenue does not catch up with our expenses, mainly because of the exchange rates. But there's another dimension that we need to look at. In regard to the membership growth. I just looked at the number of membership growth in the last - actually from January to June this year. And in total we have membership growth of 15%, something like that. But most of the membership growth is in the very small, small members' category. And I think if you look at that, you see that those are new members are just without very good experience, knowledge in our area. And we need to spend much, much more effort, workload on them in order to help them to get what they want and things like that.

But looking at the, you know, revenue side, US dollar, not looking at the exchange rate factor, the increase of revenue maybe just - I haven't, you know, calculate that. But the increase may be just 5% or so. The workload I would say would be 20%, 25% more. Yeah. So, I just want you to know at this point in the discussion, actually to give you one more point to consider. The workload increased a lot, the revenue does not increase a lot.

RANDY BUSH:

Anyone else?

KUO-WEI WU:

My name is Kuo-Wei Wu. I'm actually one of the EC also and I just make a presentation at the beginning and I think we don't have a really, that much difference between the members and the APNIC office. I don't think Arano-san or Izumi have any intention to coo that. But I think what the members really want to know is the financial. This is only one dimension, the dimension we're talking about is salary, the dimension we're talking about the travel, the dimension we're talking about the consulting, costs, APNIC meeting, whatever. This is the big issue. I think what some members actually request for another dimension. What is the percentages, for example, we say the training. In training, how many percent of the training go here. How many percent of the people dedicated in these training projects and service.

What is the dimensions this year and events or something like that? We don't need to go that detailed. Actually, we're not asking to go that detailed. But at least you must break down the projects like that. Because I think the other RIRs like in Europe, they do something like that. They have a project so you can see if these are the projects we wanted. So we agree, but the budget in there. So I think we don't have that much difference. The members and APNIC office and don't misunderstand, say we are arguing or whatever. I think we are doing the communication and we are asking for some kind of this interpretation, that is my understanding from Izumi and Arano-san. So I hope - you know, we can come up with a better communication. This is a very good platform for all of us to discuss.

So that is just, I try to, you know, see some of the solutions in here. If that come out that maybe it is not so good percent, maybe it is 10%. You know, it is OK. I think I totally understand what they are talking about. But I wish all of us, as the members of the APNIC community, we are altogether. And I think Randy put a lot of heart in here and he wants to make it harmony. But harmony we need to fine some way to have a better communication in between. So I think that is what I want to add. Thank you.

RANDY BUSH:

OK, we're supposed to go on a break. I would very much appreciate that by now and Friday that we take the time to work together so that we have some harmony and people feel that they are heard and that their needs are addressed.

GEOFF HUSTON:

I was actually a little bit surprised to hear your treasurer, say that to you. Don't forget this is not the APNIC Secretariat and the membership. We are a membership organisation. Each year you elect members of your EC to run this organisation for you. The dialogue here and the reason why I'm here is not because I'm on the executive secretary of your EC. Your EC. The chair is over there, Akinori Maemura, and I wish he'd be up here with me. The treasurer you've heard from, the information that you're after as members is a dialogue between you and your Executive Council and the information the Executive Council is going to share with you. What I'm hearing is doesn't give me a lot of confidence. That the membership and the council understand each other's role and realistically what I hear from Arano-san and Izumi-san in our conversation was not a conversation with me as a Secretariat person, the conversation with me was executive secretary of the EC.

Now we know we produce massive amounts of information in the report each year to members. The financial reports are very, very detailed and whatever but you want a bit more. What I hear from the treasurer is, "I'm not sure yet." And perhaps here the dialogue is actually about the dialogue about the roles of governance and the EC and the membership. What you have done in the bylaws in setting up this organisation is you allow the EC to act on behalf of the members between meetings. They're your people. This is your organisation. We are your servants and the way you express that is through the EC. So, please, this is not Secretariat-members' things. This is all about you and your EC and we are doing your will. I just want to make that very clear, thank you.

RANDY BUSH:

One last item before we go on break, just so you understand how important the work is. As somebody as just said in the SANOG APNIC meeting upstairs, the transition to IPv6 is critical because IPv6 makes your battery life longer. I think it's time for a break. Somebody really said that!

(End of session)