IT price inquiry zeroes in on geoblocking

Consumer groups and some private sector industry bodies have called on vendors and rights holders to remove geographic restrictions on content and online stores as one way of reducing pricing discrepancies between Australian and overseas markets.

Members of the parliamentary committee inquiring into IT pricing differences between Australia and global markets asked participants in Monday's public hearing on whether on whether blocking users from online stores and content sites based on their regional IP address should continue, or be removed.

Labor backbench MP Ed Husic, who initiated the inquiry, pointed to examples from Adobe's and Apple's online stores as an example of such restrictions.

"Apple certainly does it — you can't purchase any item from their US store because the minute you do you're transferred back to the Australian one," Husic said.

He said the ongoing use of those restrictions was one method of preventing Australian individuals and businesses from accessing, in some cases, significantly cheaper pricing for IT hardware and software offered to their US counterparts.

Participants in the hearing — including representatives of consumer group CHOICE, the Australian Retailers Association and telco industry body the Communications Alliance — issued support for the proposal.

Comms Alliance chief executive John Stanton said removal of geographic restrictions would eradicate "a classic generator of online piracy".

CHOICE head of campaigns Matthew Levey said such restrictions were "increasingly making no sense".

"The marketplace for these goods is putting consumers in a position where they are potentially avoiding a warranty if they want to, quite legally, disable the region blocking in their game console, we think that's an unfair position to put consumers in," he said.

"It's not illegal to disable it, why should they lose their warranty?"

Suzanne Campbell, chief executive of the Australian Information Industry Association which represents many of the IT vendors at the core of the committee's inquiries, claimed insufficient knowledge of the "complex issue" but conceded such restrictions "definitely warrant scrutiny".

"The challenge for us though is that these arrangements are legacies from other times when we were seeking to protect Australian content," she argued.

"To the extent where we were prepared to be exposed to a global market, then there may be a basis for negotiating a different outcome with international providers of comparable content."

The removal of IP-based geographic restrictions could potentially remove significant barriers of access to major content providers such as Netflix, HBO and some YouTube channels for Australians, the more eager of which have resorted to using virtual private networks to circumvent such blocks.

However, Levey noted that policing such efforts for US-based companies — for example, through Australian Consumer Law — would likely be difficult.

CHOICE included further investigation and potential removal of such restrictions as one of three recommendations in its submission (pdf) to the inquiry, labelling the measures "anti-competitive when they result in significant price differentials for Australian consumers".

Otherwise known as "effective technological measures", the introduction of such restrictions are enshrined in the US-Australia Free Trade Agreement that sought to protect intellectual property rights for content holders.

However, a 2004 report cited by CHOICE into those enshrined rights found the restrictions often gave "rights well beyond the rights normally associated with copyright".

David Richardson of the Parliamentary Research Service noted allegations in the early part of the decade that such technological measures were used by US companies "to preserve monopoly power on the part of copyright holders".

"Whatever the legal issues involved, it is clear that at least some of the industry practices are designed more to maximise profits than prevent piracy," Richardson said.

Government savings proof?

The AIIA's Campbell, representing the likes of Apple, Microsoft and Adobe — all of which have so far refused to publicly front the committee — defended the costs of doing business and selling hardware or software online in Australia versus elsewhere.

"In some of the commentary there seems to be a misapprehension that online equals somehow free," she said.

"Online is no different to bricks and mortar in so far as there's a need for basic R&D, product development, product management, sales and marketing endeavour, and to the extent that the costs in Australia for the provision of those online operations are the same high costs for bricks and mortar or perhaps even higher where the skills involved are more specialist.

"There are good reasons for online to also be different and higher cost than simply the provision of physical goods."

But Husic said established examples, such as the Federal Government's central procurement agency AGIMO reporting $82 million in savings (pdf) from its whole-of-government licensing arrangement for Microsoft software since 2009, was sufficient proof that vendor reasoning did not always prove true.

"They claim that there are rents, warranties, taxes, labour that drives their price, but it really is about who is able to extract the best price based on volume," he told iTnews at the hearing.

"So if you're AGIMO and you're negotiating on behalf of government for procurement and it's all documents, how much has been able to be saved.

"The issues that are being put forward by the industry — tax, rent, labour, all of that — doesn't seem to apply when you're able to secure major discounts. And they're using resellers.

"Bottom line I'm yet to be convinced, I still believe it's basically they price what they believe they can do at the moment and they're getting away with it."

Representatives from Adobe, which has also been targeted as a key source of pricing discrimination for its software, appeared at the public hearing but did not front the committee.