Chapter 1 Introduction
On 18 May 2012, Senator the Hon. Stephen Conroy, Minister for Broadband,
Communications and the Digital Economy, requested that the House of
Representatives Standing Committee on Infrastructure and Communications inquire
into the pricing of information technology (IT) products in Australia.
In his letter of referral, Minister Conroy highlighted ‘growing interest
in the differentials that exist in prices for IT hardware and software sold in
Australia,’ an interest which has intensified as the Australian currency gained
value against the US dollar.
The Minister noted the internet’s value to Australian business and
consumers, and the considerable opportunities for economic expansion the
digital economy presents. He also noted, however, the concern that when
purchasing IT hardware or software, Australian small businesses, private
consumers, and governments could face price disparities that may affect their
Consequently, the terms of reference for the inquiry required the
Committee to investigate:
n whether IT products
sold in Australia are more expensive than those sold in comparable overseas
jurisdictions, and if so, how much more expensive;
n why any such
differences may exist;
n the impacts price
differences may have on Australian consumers and businesses; and
n what actions, if any,
may be taken to mitigate those impacts on Australian consumers.
For the purposes of the inquiry, the term ‘IT products’ includes both IT
hardware and software, and covers games, consoles, e-books, music and video
sold in Australia, either online or in retail outlets.
Context of the inquiry
IT is omnipresent in businesses of any size or complexity, in schools
and universities, and in millions of Australian homes. Information technology
influences almost every aspect of Australia’s economy and society.
IT products are at the heart of our financial and logistics systems, and
support critical infrastructure, health, education and welfare systems. IT
products are critical to research and innovation, economic competitiveness and
Australia’s future social and economic prosperity.
The internet has transformed the Australian economy over the past 20
years, and is poised to play an even greater role in daily life as Australia’s
engagement with the global digital economy broadens and deepens.
According to a 2011 Deloitte Access Economics report, the internet made
a direct contribution of approximately $50 billion – or 3.6 per cent of
Australia’s Gross Domestic Product – to the Australian economy in 2010, a
contribution of similar value to the retail sector or Australia’s iron ore
exports. The direct contribution of the internet is forecast to increase by
another $20 billion to roughly $70 billion by 2016.
Between 2010 and 2011, 6.2 million or nearly three quarters of
Australian households had broadband internet access.
In the same period 91.2 per cent of businesses had internet access, and 43.1
per cent had a web presence. 50.8 per cent of businesses placed orders via
the internet, and 28 per cent received orders over the internet.
More Australians now use internet banking than visit a bank
branch. As of December 2010, 45 per cent of Australians
had used internet banking in the previous four weeks, overtaking the 44 per
cent who visited a branch.’ Internet banking usage
has risen from 1 per cent to 45 per cent in the last 12 years.
In 2012, online sales in Australia totalled more than US$35 billion. Over 10 million Australians, almost
half Australia’s population, made a purchase online in 2012, on average
spending A$3,431 per person. This
expenditure was on average 54 per cent higher than the United States and the
highest in the world with the exception of the United Kingdom.
In its submission to the inquiry, the Department of Broadband, Communications
and the Digital Economy (DBCDE) noted that IT hardware and software are a ‘key
driver of productivity growth in our economy’, and that therefore:
… [it] is important for Australia’s global competitiveness
that Australia pays no more for the technology that underpins its success than
it must. The ubiquity and affordability of technology is a key requirement for
Australia’s competitiveness in the global economy and underpins everything from
home finances to our export trade.
It is generally accepted that Australians have tolerated higher prices
for a range of goods for much of their history. In general, higher prices have
been attributed to:
n its comparatively
small and scattered population, and
n a historically weak
In recent decades, however, the internet has allowed Australian
consumers to observe and participate in the global marketplace, and to become
increasingly aware of prices in comparable overseas markets. Many consumers
have also become aware of, and frustrated by, regional pricing strategies that
prevent them from taking advantage of cheaper prices overseas.
The Committee sought to explore any structural or commercial reasons for
the significantly higher prices paid by Australians for IT products. These
included claims by IT product vendors about higher business costs, taxes,
Australian regulatory regimes and requirements unique to the Australian market.
The Committee is aware that while regional pricing strategies may exist
across many industries, they are particularly noticeable in relation to IT
products, including those which are digitally delivered with identical content
in different countries. In many cases prices are significantly higher than what
might be expected as a consequence of any costs arising from delivery in the
Conduct of the inquiry
The terms of reference of this inquiry were very broad. IT products now
permeate every aspect of the Australian economy and society. No single
government department or agency is responsible for relevant policy or
regulation. Business and consumer groups offered a wide range of perspectives,
but none dealt with the totality of issues raised by the terms of reference.
To familiarise itself with current policies and issues relevant to the
inquiry, the Committee requested briefings from DBCDE, the Attorney-General’s
Department, the Department of Finance and Deregulation, the (then) Department
of Industry, Innovation, Science, Research and Tertiary Education, the
Treasury, the Australian Competition and Consumer Commission, and the
In the inquiry’s initial stages the Committee sought submissions from
the public and invited a broad range of IT companies, business and industry
bodies to make submissions. The inquiry received 133 submissions, 15 supplementary
submissions and 5 exhibits. The inquiry generated significant interest in the community,
and this has been reflected in high levels of media coverage.
More than half of the submissions received were from consumers, most of
whom expressed frustration at what they characterised as unfair prices for IT
products. The majority of consumer submissions reported high prices for
computer games, software, hardware, e-books and digitally downloaded music.
The Committee held eight public hearings: in Sydney on 30 July 2012 and in
Canberra on 19 September, 5 October, 31 October, 28 November 2012, and on 13
February, 13 March and 22 March 2013. The Committee heard evidence from
consumer groups, government agencies, and industry groups representing IT
companies, publishers, retailers, and record labels.
Engagement with industry
From the beginning of the inquiry, the Committee expressed the
reasonable expectation that relevant IT industry organisations and companies would
take an active role in the inquiry through submissions and participation in
public hearings. In offering an opportunity for participation in a public
inquiry, the Committee hoped that business and industry bodies would seek to
engage with and respond to some of the observations and concerns raised quite
openly and regularly by consumers. In this manner, the Committee anticipated a
rigorous and fair examination of issues of clear concern to Australian
From the outset, the Committee experienced the frustration felt by
consumers in seeking an answer to legitimate queries. Some large companies
stated they would be represented by an industry body, while the industry body
stated it could not represent the views of individual members. While various
‘peak bodies’ took this approach, it was most acutely stated by the Australian
Information Industry Association (AIIA).
Communications between the Committee and various industry bodies and
individual companies continued for several months. While some material was
provided at various stages in written submissions, and in response to specific
requests, it was of limited benefit to the inquiry and in the Committee’s view
did little to address consumers’ concerns. The Committee continued to extend
written invitations to various individuals and organisations to attend
hearings; these were repeatedly declined.
On 29 October 2012 the Chair, Mr Nick Champion MP, in updating the House
on the progress of the inquiry, stated:
To one degree or another, there has
been a real unwillingness to submit evidence in public or to appear before the
Committee on the part of both industry associations and major companies in the
area of IT. The committee detects a deep
reluctance and resistance on the part of the relevant companies to discuss in
public the issues that the Committee is considering or to
publicly defend their business models and pricing structures. The committee
would, of course, be willing to hear in camera matters that were commercially
sensitive—which is a common practice amongst committees—but the Committee’s
offer to do so has not been taken up. Rather, the industry seems to employ the
tactic of giving either little or limited cooperation to the Committee, particularly in public testimony. This stands in stark contrast
to what has happened in other inquiries which have investigated areas of
commercial sensitivity in that these inquiries received cooperation and
information from industry participants…It is not good enough for the industry
to simply stonewall the inquiry—or, for that matter, to
ignore interested consumers who have a legitimate public interest in IT pricing. It would be far better for companies
to defend their business model and their pricing structure in public before the
Committee. The committee has offered these companies more
than once the chance to appear. We would give them a fair hearing; they have my
public commitment on it. The companies’ failure to appear
leaves the Committee with an unenviable choice between compelling the
attendance of individuals to give evidence and reporting without hearing in
detail from industry. The choice between one or other of these alternatives can
only be averted by the IT industry’s following the first rule of good public
relations: always turn up and put your case.
The Committee resolved that the companies be required to provide
evidence in general terms on how IT is priced in Australia. The Committee took
the view that the Parliament has a duty to inform itself about all manner of
issues in the Australian community and that if necessary, parliamentary
committees should be prepared to require the attendance of witnesses in order
to secure relevant evidence.
Therefore on 7 February 2013, the Committee took the unusual action of
summonsing the following individuals to appear before the Committee at a public
hearing on 22 March 2013:
n Mr Tony King, Vice
President, Apple Australia
n Mr Paul Robson,
Managing Director, Adobe, Australia and New Zealand, and
n Ms Pip Marlow,
Managing Director, Microsoft Australia.
Structure of the report
The report is divided into four chapters. Chapter 2 of the report provides
some definitions of ‘international price discrimination’, and considers the
growing consumer awareness of its presence. It then provides a context for
reflecting the evidence which suggests that, across a range of categories, IT
products in Australia are more expensive than those sold in comparable overseas
markets. The chapter then outlines some of the clear impacts of higher IT
prices on Australian consumers, businesses and institutions.
Chapter 3 presents some explanations for higher prices as advanced by industry
and IT vendors, including about some of the increased costs of doing business
in Australia. The question of responsibility for setting prices in the Australian
market is discussed, including the roles of businesses and rights holders.
Aspects of industry approaches to pricing are considered, including the
legitimate ability to set prices ‘according to what the market will bear.’ Some
views of major IT vendors are included in this chapter, as well as some
responses from Australian consumers.
Chapter 4 examines aspects of Australia’s copyright system, with a focus
on competition in digital copyright markets. It also examines potential
international agreements, and concludes with a discussion of the remedies
available to Australians affected by international price discrimination.