Speech to Global Access Partners Annual Growth Summit – Australia’s Productivity

I really appreciate the opportunity to be with you today at the Annual Growth Summit and I’d like to thank Global Access Partners, and in particular Executive Manager Lisa Middlebrook, for the opportunity to speak.

It’s nearly two years to the point I was actually sworn in as a Federal Member of Parliament. What I have learned early on is that getting change and pursuing issues does require an almost obsessive like commitment.

I don’t know if being as “stubborn as a mule” is a helpful skill set for a MP but I am very open to the idea of reporting back to this summit on my experiences at some later date.

The ability of MPs to advance issues and find ways to secure support for change is regularly tested, as it should be.

I’d say that this has definitely been the case on an issue that I’ve been focused on for some time – the impact of relatively high prices for Information Technology (IT) in this country.

For over 18 months this I’ve pursued this within Federal Parliament, for reasons that will become clearer during my contribution.

It’s been challenging to get traction on this matter, especially when some of the big players in the sector having hoped the issue might helpfully dissolve before firmly shut eyes.

However consumer and business sentiment on this issue ensures that this won’t be the case and I’ve been grateful for the support of Communications Minister Stephen Conroy, who has helped set up an inquiry into the state of IT pricing in Australia.

The inquiry has attracted bipartisan support and interest in cooperatively investigating the policy issues at the heart of the inquiry.

Some submissions have been eye opening but one aspect that’s intrigued me is the multi‐faceted response from the business sector.

You don’t have to look too far in the business pages of most of our press to find sections of industry hum a mantra like chant about the cost of doing business in this country – but then see industry associations in the next breath defending businesses that are actually propping up these costs.

I want to come back to this later but for now it’s important we get a sense of where’s we’re at and what’s at stake.

What are we looking at here?

The number of outstanding facts about the revolutionary changes brought on by the internet is at risk of becoming pedestrian. But I’ll risk dropping one telling fact.

Radio broadcasts took 38 years to reach an audience of 50 million people, TV took 13 years to reach the same number.

The internet did it in just four.

Accessing this technology has not been for the sake of savouring a play‐thing.

According to Boston Consulting Group, it has started shattering the cost of production and distribution, reshaping industries along the way.

In Australia, we stand on the threshold of a complete and utter renewal of our continent’s technological infrastructure.

Few countries in the world are doing what we are doing to improve our ability to seize the advantages flowing from accessing super‐fast broadband – delivered by the National Broadband Network.

But we’re playing a massive game of catch up.

Our broadband infrastructure has lagged well behind Sweden, the Netherlands, Switzerland, Denmark and Norway.

By late last year, we ranked 21st out of 34 OECD countries when it came to fixed broadband take‐up.

In September 2011 we were rated four places below the OECD average in advertised download speeds across all fixed line technologies and even worse for fastest available advertised cable speeds (6th slowest) and DSL speeds (13th slowest).

Staggeringly, we’re paying an arm and a leg for it: with OECD stats revealing Australia as the fifth most expensive country in the OECD for low speed, low data cap broadband plans.

Getting this fixed is compelling. It’s why the Federal Government is working to ensure that via the NBN 93 per cent of Australian homes, schools and businesses will have access to superfast broadband through optic fibre to the premises, capable of providing broadband speeds of up to one gigabit per second.
The economic benefits of having access to this infrastructure simply can’t be overstated.

Google commissioned work via Deloitte Access Economics pointed out that the internet helped generate $70 billion worth of economic value.

The ability to track down information, to be more efficient with our spending, amounts to a saving of about $500 per person ‐ $7bn nationally. We’re more productive because of this: in 2011 business and government generated $27bn in value through productivity benefit.

And as 20 per cent more Australian homes are connected to the internet, it will bump up our economic growth by one per cent.

By 2050, IBM’s research estimates that $1 trillion worth of value to our economy could be created through the application of technology, via the internet and taking into account the improved productivity that flows from businesses and governments and communities effectively digitising the way that they operate.

Hand in glove: NBN and business IT investment

I’ve sought so far to give a sense of the breadth and economic value of the infrastructure investment being undertaken at the national level.

But the picture is not complete without filling in the detail – that is, the type of investment being undertaken within over two million small to medium sized businesses.

Back in June, Sensis commissioned the “eBusiness Report – the Online Experience of Small and Medium Businesses”.

They liaised with nearly 2,000 businesses across the country, covering around ten different business sectors. Over 80 per cent of the businesses contacted were small business, the rest were medium sized.

A quick snapshot: some remarkable, others that – at first blush – don’t have the same shine but taken on a greater gleam with after thought:

• 95 percent of SME’s own a computer – notebook computers starting to shrink in number, but purchase of
• This mirrors what’s happening in our homes with 93 percent of households having a computer of some on;
• 2 per cent of SMEs connected to the internet; • The amount of business done online remaining stable, with SMEs placing over a third of their procurement
• Online selling as a share of total sales activity rose to 31 and,
• An average $4,000 spent on website build and maintenance.
These stats reinforce what we know – technology is a necessity for most businesses, taking on larger importance to their operations, to their revenues.

In fact AiG in its January 2012 Report Business investment in New Technologies said that according to 70 per cent of the businesses they spoke with improving productivity was the main reason for investing in new technology. Let me return to AiG’s contribution to this debate later.

According to Sensis, small and medium enterprises are likely to invest significantly on information technology, at a rate greater than the last year.

SMEs will focus more on software but overall will probably spend an average of $11,300 for hardware and software this ear. This represents an $1,800 lift relative to the year before.

Small businesses will invest an average of $7,800 on new IT gear – but medium businesses will probably spend close to $82,000.

Indulge me as I reinforce the point: our two million businesses – largely SMEs – each spending on average $11,000 on new IT equipment.

On top of that they’re spending on average $5,300 maintaining IT systems – and this is expected to increase to $6,300.

Adding this bill up

So why have I sought to crush your post‐lunch serenity with this noisy truckload of statistics? Let me come back to the IT Inquiry.

In the raft of the submissions received – great submissions, enthusiastic engagement – one is particularly relevant here.

It was one made by consumer advocates, Choice Australia, who examined prices across over 200 different IT products – between Australia, the US and the UK.

It found Australians are paying up to 60 percent – sometimes up to 80 percent – more for software, although the differences are not as stark when it comes to hardware. It blames price discrimination: because consumers are prepared to pay, the vendors are happy to overcharge.

The issue with software is baffling because with downloads things such as shipping and handling costs are almost negligible.

If the evidence before the Committee is does show we’re paying 60 to 80 per cent more for hardware and software in this country – and taking into account the Sensis figures for IT spend by SMEs – then could potentially be artificially inflating prices within our economy.

The business of costing business money

I would have thought a natural ally in this contest to reduce business costs would be business. But I’ve experienced a revelation: delivered by the Australian Industry Group, who in their submission to the IT Inquiry:

• Argued that the cost of doing business in Australia was high;
• Said that fixing this should be left to the market… that is widely recognized as being afflicted by IT price discrimination;
• Pointed to competition law as an avenue to address this; and,
• Then said additional government intervention isn’t warranted.

The AiG gave the nod to the usual litany of underpinning factors driving up costs: rents, labour, taxes, warranties, environmental regulation. Mind you no quantitative data was presented to explain price differences of between 60 to 80 percent, especially for software downloads.

It’s even harder to get this data when the major vendors refuse to engage with the Inquiry, treating the Parliament with contempt.

I believe the Inquiry will be forced to confront the prospect of subpoenaing major vendors to provide greater detail to justify the price discrimination being levelled at Australian businesses – and something more substantive than a one to five page submission.

Further, members of the AiG should be asking why their industry association has sought to place greater emphasis on the need to represent one section of its membership (IT) at the expense of pursuing lower business inputs for the broader AiG membership.

If AiG and others want to maintain the business cost mantra I merely ask them to consider one question: are you prepared to concede that pricing approach of some of the big players in the IT sector might just be adding to those costs?

If you do, then it might be time to work cooperatively to see those costs start gliding downwards. Ultimately, I believe the biggest motivator for this is simple:

the business community and the broader nation will more quickly reap the benefits of our revitalised broadband infrastructure by ensuring that the equipment necessary to connect to this new network is secured at less cost.

Remember: up to two million Australian businesses paying $11,000 each – being charged between 60 to 80 per cent more for the privilege.

That focuses the mind… and the bottom line.

(ends)

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Ed Husic MP
Federal Labor Member for Chifley


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