Apple Australia passes the buck in price inquiry

Apple Australia has blamed its US parent, digital content owners, and its retail partners for higher local prices in its first public appearance in a parliamentary inquiry into Australian IT pricing.

Apple’s regional vice president Tony King denied that there was a material difference in its Australian and US prices, describing a 1 to 5 percent gap for several hardware products and a 1 to 3 percent gap for some software.

He blamed Australia's 10 percent GST for "inaccurate conclusions" about advertised prices of products in Australia and the US.

Excluding GST, iTnews found Apple's 16GB iPhone 5 priced at $A719 locally — 15 percent higher than the US price of $US649 at today's exchange rate of 1.04 (USD to AUD).

“[GST] alone is responsible for a great deal of confusion and has resulted in some inaccurate conclusions regarding our pricing,” King told the parliamentary committee.

“Price considerations must go well beyond looking up currency exchange rates. For example Apple must consider differences in a country’s product costs, freight charges, local taxes and levies, import duties, channel economics, competition, competition and local laws.”

Prices set by Cupertino and partners

The committee recognised Apple’s attempt to bring pricing nearer to parity in Australia in recent years but asked why that hadn’t always been the case.

King said Apple product prices were established at the time a product is introduced and only altered upon a product upgrade.

He said the US-based parent set prices globally and later looked at market variations, rather than operating on a policy of pricing products based on what a market could bear.

“We start with a US determined price. We do take into consideration the cost of doing business in a market. In the area of freight, in the per unit freight charge of an iMac, it is more expensive to bring that into Australia than it is in other markets,” he said.

“As we distribute that product around the country, it is more expensive to air or truck them around this country than it is in Singapore for example. They’re the things we taken into consideration.”

Despite claims to the contrary by committee member Ed Husic, King also said Apple did not control how its channel partners sold its products.

Apple has 18 retail stores, 2600 employees and 600 channel partners nationally, with the local division representing around 3 percent of its global business, according to King.

King declined to disclose the margins available to Apple retail partners. He said partners were free to set prices as they saw fit.

“Our partners are constantly driving innovation in the way around the provide value to customers and that will manifest itself in anything from a bundle offer to a discount, but that pricing is purely in the court of the retailer and it is their decision," he said.

“We take great interest in the way our products are displayed across the market. But the number that goes into the display that sits on the table is entirely on the hands for the retail partner. It is not set by Apple."

Digital content

When asked why the Led Zepplin album IV was 85 percent more expensive locally, King said the disparities were imposed on Apple by the owner of the content and there was a direct correlation between Apple’s price and the wholesale price.

“If you were to lower the wholesale price of the Led Zepplin album to be the same as the US, we would see that come all the way through the pricing model to provide parity situation. It’s at a direct correlation level.”

He laid the blame squarely on music labels, studios and TV networks for region-specifying prices for digital content.

He said digital content owners often set higher wholesale prices in Australia than in the US, adding that iTunes prices were in line with other Australian physical and online stores.

“In this digital age the content industry still runs with old-fashioned notions of country borders or territories or markets,” King said.

“When that song is licensed by iTunes for distribution, a condition that we must honour is to match that song to the territory where the rights are applicable.”

He said although the retail pricing on iTunes content was also based on Australian statutory payments, royalty fees and GST, the wholesale price was the main contributing factor for any price differentials.

King urged the committee to take the issue up with the digital content rights holders.

This morning’s appearance marked Apple’s first public showing in the inquiry. It was forced to a public hearing following a subpoena by the committee investigating the issue, after refusing to publicly participate.

It previously provided a private submission and attended a private meeting with the committee but had not provided enough information to satisfy committee members.

Adobe and Microsoft will also face the committee on pricing throughout the day.