Why the IT pricing report is stalled at the starting blocks

I'd love to see IT prices come down to comparable levels to the US, and Netflix and Hulu arrive in Australia, but there are many reasons why we won't see it happen this year, at least.
Written by Josh Taylor, Contributor

The long-awaited parliamentary report into the IT pricing disparity in Australia compared to the rest of the world was handed down yesterday, just before the federal election.

It's being seen as a win for those who have long complained that Australians have paid far too much for IT in recent years, particularly when the Australian dollar was above parity with the US dollar. After a 12-month investigation, which saw hundreds of submissions from the public and several hearings where the likes of Apple, Adobe, and Microsoft were compelled to give evidence, the committee found that the so-called Australia tax on IT hardware, software, and digital content does in fact exist.

"Based on the evidence received over a 12-month inquiry, the committee concluded that in many cases, the price differences for IT products cannot be explained by the cost of doing business in Australia," committee chair Nick Champion said. "Particularly when it comes to digitally delivered content, the committee concluded that many IT products are more expensive in Australia because of regional pricing strategies implemented by major vendors and copyright holders."

The 10 recommendations to come out of the review were fairly light on, however. They amounted to essentially suggesting that the Australian Bureau of Statistics and Australian universities keep tabs on IT prices, while the government will go about educating people on how to get the most out of their hard-earned dollar (including circumventing geo-blocking mechanisms), as well as narrowing the law to limit what the companies can get away with, and then, maybe, if all else fails, leaning hard on the companies and enacting geo-block bans.

There are a number of reasons why the IT pricing report won't leave US tech companies quaking in their stylish-yet-affordable boots, for now.

Slow government is slow

It goes without saying that a federal election will be called very soon in Australia. It has been speculated that Prime Minister Kevin Rudd could call the election as early as this week. The government has already indicated that even if parliament was to sit again in August, it would be unlikely for there to be any movement based on this report before the election.

There was no dissenting report from Coalition members of the parliamentary committee for the IT pricing inquiry, indicating that whatever the outcome of the election, the recommendations do likely have bipartisan support. However, that doesn't mean that after the election, either future government will immediately begin to act on the recommendations.

The report made a number of recommendations about changing the Copyright Act. Specifically, it said that restrictions around parallel importation should be lifted, and customers should be allowed to circumvent technological protection measures (ie, geo-blocking) under the Act. The report also said that if all else fails, the Copyright Act should be amended to specifically ban geo-blocking.

But the Australian Law Reform Commission (ALRC) is already conducting a review of the Copyright Act that is specifically looking at how the Act should be updated to reflect the impact of technological change on copyright.

The ALRC will not report back to the government until toward the end of the year, and it is likely that the government would want to bundle up its responses to the IT pricing report in with responses to the copyright review, in a similar way to how the government sat on the Convergence Review report recommendations until the Finklestein Inquiry into the media had been completed, and then responded to them together.

This, it should be noted, resulted in the technology-related recommendations from the Convergence Review being completely ignored.

It took eight months for the government to ignore the recommendations from a two-year review of Australia's classification system when it decided to abandon a proposal for mandatory internet filtering of content deemed to be Refused Classification.

It would be highly surprising if the government is any faster in moving on the IT pricing recommendations.

Rent seekers will seek rent

The Australian government recently announced Fringe Benefits Tax changes, where a car provided to employees as a fringe benefit is only exempt from tax for business use rather than personal use, in a move that is expected to save the government AU$1.8 billion.

It didn't take very long for spokespeople from "The Australian Salary Packaging Industry Association" to step out and begin complaining that the move could cost thousands of jobs in the car manufacturing industry.

In the report, the committee points out that many IT companies said that pricing in Australia is higher due to channel partners, which have greater operating costs in Australia for rent and labour. In evidence to the committee, Microsoft blatantly stated that it charges what it thinks the market can handle.

Lifting parallel importing restrictions and encouraging Australian consumers to actively avoid geo-blocking to buy IT products from overseas will no doubt bring many of these channel partners out of the woodwork to complain that the Australian government is seeking to put them out of business. There will be cries of how the government is against small business and is destroying the economy.

You only have to look at Gerry Harvey's campaign to get GST put on imports to see what sort of arguments we can expect.

Lack of jurisdiction over US companies

Apple, Microsoft, and Adobe, or at least their Australian representatives, were forced to appear before the committee to explain themselves. That was all well and good, but a good portion of the complaints to the inquiry, particularly around geo-blocking from internet streaming sites like Netflix or Hulu, were made against companies that have no presence in Australia.

The Australian government stamping its feet and complaining that Australian consumers are being hard done by for services that aren't available in Australia isn't likely to bring these companies to our shores any quicker.

The launch of Foxtel Play in Australia is a good start for IPTV in this country, but it is no Netflix or Hulu. Australians are very keen for these services, and are finding ways to get access themselves, but that hasn't spurred either company to talk about when they plan to launch in Australia.

Both Netflix and Hulu have trademarks registered in Australia, but both companies have not made any mention of when they will launch here.

At Netflix's most recent investor briefing, the company said that expansion to other countries is something the company is looking at, but it is also signing content deals in countries it is not operating in. This includes Australia, where Foxtel and Netflix recently signed a deal to give the former access to the Netflix-backed series House of Cards.

The companies will likely eventually get to Australia, but it will be determined by when they think the market is ready, rather than because the government told them to.

Falling Australian dollar

Image: Screenshot by Josh Taylor/ZDNet Australia

We had a good run while it lasted, with the Australian dollar above parity with the US dollar; we were able to import goods for much cheaper than they were available domestically, albeit at the expense of our exports industry. Now that the dollar has begun to fall, IT companies who adjusted their prices to match the trade rate before, like Apple, will likely again adjust their rates up as the value of our currency drops.

It's not difficult to see a situation where the government responds to concern about IT price rises from the falling dollar in conjunction with the IT pricing report by stating that it will monitor the changes in prices relative to the dollar value, rather than forcing companies to keep pricing consistent.

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