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  • Enterprise IT, Featured, News - Written by on Tuesday, October 30, 2012 14:19 - 30 Comments

    “Obstruction, avoidance and evasion”:
    IT giants stonewall price inquiry

    news Members of Parliament from both major sides of politics have very publicly blasted global technology giants such as Apple, Adobe and Microsoft and even representative group the Australian Information Industry Association, for what they described as “deep reluctance and resistance” to give evidence before a parliamentary committee investigating local IT price hikes.

    In May, following a public campaign on the issue by Labor backbencher Ed Husic, the House of Representatives Standing Committee on Infrastructure and Communications called for submissions to help inform an inquiry into pricing of technology goods and services in Australia, publishing the terms of reference for the initiative on its web site. The results have so far demonstrated a strong groundswell of public anger about ongoing markups on technology goods sold in Australia.

    Many of the submissions from users focused on the fact that online stores such as Apple’s iTunes, Valve’s Steam, Microsoft’s Xbox Live, Sony’s PlayStation Network, Amazon’s Kindle store and Adobe’s software store charged Australians higher prices for the exact same software and content than residents of other countries, particularly countries such as the US. Companies such as Microsoft have previously justified the charges based on the increased cost of doing business in Australia.

    However, not all companies whose products have been mentioned by the inquiry have volunteered to attend to give evidence. US software giant Adobe, for example, declined to appear to give evidence to the inquiry, although it participated in a submission by the Australian Information Industry Association. Adobe has a practice of commonly marking up software products for the Australian market such as its popular image editing application Photoshop — despite the fact that the software is often downloaded from the same site in Australia and the US.

    The reluctance of major vendors to appear in front of the inquiry has resulted in public displays of anger by members of the committee. In September, for example, Husic publicly raised the prospect of compelling recalcitrant technology vendors to appear before a parliamentary committee on IT price hikes in Australia, alleging that some suppliers are “treating the Parliament with contempt”.
    If dramatic speeches given yesterday are any indication, it appears to be the case that both Labor and the Coalition have run out of patience on the issue.

    Speaking yesterday in the House of Representatives, committee chair Nick Champion said to date the committee had received “only qualified and sporadic cooperation from industry groups and major IT companies” during the proceedings.

    For example, he said, the AIIA, industry association representing IT companies, “provided a submission and appeared but was unable to provide specific information on behalf of its individual members”. Champion added: “Once it became apparent to the committee that major companies did not intend to appear before the committee and give public evidence, we did ask the AIIA to reappear on behalf of the industry; but this request was refused.”

    For its part, Apple made a confidential submission and provided a confidential briefing to members of the committee but had refused repeated written requests to make a public submission or to appear before the committee to give evidence, while Adobe initially informed the committee that it would be represented through the AIIA. “But, given the AIIA’s inability to provide detailed answers to the committee’s satisfaction, we then sought further information and submissions from Adobe, which they provided on a confidential basis,” Champion said.

    “They have offered to appear—but only if other companies in the sector appeared at the same time. Microsoft, to their credit, made a submission and some further supplementary submissions to the inquiry but have been unwilling to appear before the committee and have proposed alternative contributions instead.”

    In general, Champion said, “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”.

    He added: “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 industry seems to employ the tactic of giving either little or limited cooperation to the committee, particularly in public testimony.”

    Champion said this behaviour stood in stark contrast to what had happened in other inquiries which had investigated areas of commercial sensitivity – for example, the retail sector inquiry in 1999, in which Woolworths appeared twice and included its chief executive and five other senior managers.

    “If it is good enough for an Australian company such as Woolworths to give public evidence on matters of commercial interest to them, it should be good enough for Apple and others to appear and do the same,” Champion thundered in the chamber. “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.”

    “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.”

    Nationals MP and deputy chair Paul Neville agreed with Champion, in a rare show of unity between the major sides of politics.

    “I rise to support the chair of the committee as his deputy,” Neville told the chamber. “It is obvious from the evidence we received from members of the public and people on the consumer side of this agenda that the public has had enough of this pricing, which puts Australia at a disadvantage in a whole range of areas, such as IT hardware and software and things that spin off them—music downloads and engineering, medical and educational software.”

    “The committee sought constructive, candid involvement from various large companies. But they have been difficult, as the chairman just pointed out. There seemed to be a reluctance from some international corporations to get involved in the inquiry, even after a number of direct requests. We feel that we have come to a point where there is obstruction, avoidance and evasion. One of the silliest
    ones is that, on the one hand, the industry body says they are there to represent the industry, but, when we ask them a specific question, they say they cannot possibly talk for individual members. So we have this catch 22 going on.”

    Nevill added: “The ultimate sanction for this sort of thing is to invoke the committee’s powers to subpoena people. I am always reluctant to do that, but I think a time comes when we should consider the sanctity of the parliament and what it is here to do. When the minister asks us to look into something and report back to this parliament and we are deliberately frustrated, I think we need to send out a signal that we are not going to accept that and that we expect a better level of conduct from the industry.”

    Technology vendors such as Adobe and Microsoft have in the past offered a number of reasons for why prices were set differently in Australia compared with their home country of the US. In August last year, Microsoft responded to Husic’s comments about Australian markups on its products by stating that it doesn’t set final prices to local customers — and stating that it was difficult to make direct pricing comparisons between countries, given differing local conditions in each jurisdiction.

    Adobe stated the issue wasn’t one for the technology industry alone — claiming it was a wider problem affecting other areas such as the automotive sector as well. At the time, the company said the majority of Adobe’s software in Australia was sold through channel partners — and so the prices listed on its online store may not reflect competitive pricing in the market. In fact, the price through its own online store would reflect a price towards the upper end of the range which its channel partners were charging. The company didn’t want to undercut its channel partners in Australia.

    PC manufacturer Lenovo has also attempted to defend of its Australian pricing, despite in 2011 launching its flagship new ThinkPad X1 laptop in Sydney for $560 more than the same hardware will cost in the United States. Apple also commonly charges more for its products in Australia, although the company has made some moves towards international price harmonisation over the past year.

    opinion/analysis
    I’ve enjoyed a long-running relationship with the local offices of major technology vendors such as Microsoft, Adobe and Apple for the better part of a decade now. Good people work at these companies, and I admire much of the work they do. Certainly I continue to use and write about their products almost every day. I simply could not do the work I do without Microsoft Office and Windows 7, Apple’s Mac and iPad products, and Adobe’s Creative Suite.

    So it is with respect, and conscious of that long relationship, that I say, enough is enough. These companies are treating the Australian consumer and the Australian Parliament with contempt right now on this issue, and need to pull their head in. Strength and pride can be virtues at times, but so can humility, and right now a little humility is needed from these companies, before both sides of Federal politics decide that they are tired of being treated like they don’t have any authority and start making the vendors’ lives very, very difficult indeed.

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    1. Daniel
      Posted 30/10/2012 at 2:31 pm | Permalink |

      Good – but lots of words…

      More Actions is needed.

      • Posted 30/10/2012 at 2:58 pm | Permalink |

        I agree; the committee should just go ahead and compel these vendors to attend; they’ve been threatening to long enough.

        • Dan
          Posted 31/10/2012 at 12:25 pm | Permalink |

          Maybe they can just remind these companies of the power the committee wields?

          Failure to put forward their point of view risks having no alternative argument and the committee finding 100% in favour of consumers, resulting in such recommendations to parliament to;
          – amend laws around parallel imports that would specifically permit large scale parallel importation of products where significant retail price difference between source and market are apparent, and
          – making it illegal to enact measures that prevent goods purchased in a foreign country from being used locally (as in failure to activate, or geo-locking software), with fines levied at a 10x multiple of the cost to purchase locally.

          That might spur them in to action

    2. Peter Kelley
      Posted 30/10/2012 at 3:00 pm | Permalink |

      In the 90s when the IBM software group was established I remember the then Australian product manager making a blanket statement that whatever the price was in US dollars, that was what the price was in Australian dollars. The exchange rate was about 1 Australian dollar to 70 US cents at the time. If IBM could do that then why can’t more technology companies do it now?

      • Melb
        Posted 31/10/2012 at 7:00 am | Permalink |

        I am pretty sure that IBMer doesn’t work there anymore! Things have changed. Even though we have pretty much parity on the $ the internal IBM rate for the Aussie $ is something like 60 cents in the dollar.

        • Peter Kelley
          Posted 31/10/2012 at 9:21 am | Permalink |

          Well that was a long time ago and this was the first year that IBM Software Group existed in Australia but hey everyone overachieved their targets that year so we must have been doing something right :)

    3. GongGav
      Posted 30/10/2012 at 3:25 pm | Permalink |

      The looks/quacks/walks like a duck example springs to mind again. They look guilty of price gouging, and are doing nothing to change that perception, so the common belief will be that they are guilty of price gouging.

      And until I see evidence to the contrary, thats my personal view as well. Adobe duck, Apple duck, and Microsoft ducks, all coming to a big pond near you.

      To try and bring cars into it is pretty misleading as well. Go price a new car in Australia at the moment and their prices are at an all time low.

    4. mash
      Posted 30/10/2012 at 3:37 pm | Permalink |

      With such bi-partisan support and seemingly genuine interest and concern from the politicians, this obstructionism would seem the perfect trigger for Government Action!! – grab your pitchforks and torches!

      …but unfortunately what can the Government actually do to these companies without violating general international trade and free-market principles? I’ve yet to hear a single suggestion :( Apple etc know this very well and hence they can thumb their noses at the enquiry with impunity.

      Its the same as those silly people wanting to collect GST on internet purchases – the trifling detail of HOW gets left behind….

      • Stephen
        Posted 30/10/2012 at 6:29 pm | Permalink |

        Actually parliament is allowed to violate treaties – they’re the one’s who create them so they can dismiss them too if they don’t meet their intended purpose.
        Politicians only regard treaties as sacrosanct when their own interests line up with those of the treaty.

        Actually bringing cars into it just sounds like a child trying to pass blame because some one else has broken the rules too. And the car import industry does take the piss with local pricing.

      • GongGav
        Posted 31/10/2012 at 9:48 am | Permalink |

        A simple suggestion would be to get geolocating banned for commercial purposes. They target us based on either our IP address, our physical address, or our credit card. Stop that from happening, they have to charge the same.

    5. dude
      Posted 30/10/2012 at 3:47 pm | Permalink |

      How about we don’t sign the TPP, abolish existing agreements and when software companies gouge australians, we make pirating their software legal.

      • Daniel
        Posted 30/10/2012 at 4:05 pm | Permalink |

        And make software/gaming/hardware release dates illegal.

      • RocK_M
        Posted 30/10/2012 at 4:30 pm | Permalink |

        Globalisation at it’s finest! :D

        Take down the barriers to trade and we’ll be happy to trade to you too! We’ll buy your stuff and you can buy our stuff….. as long as you can sell and buy at *our* price! =P

    6. Stephen H
      Posted 30/10/2012 at 7:02 pm | Permalink |

      Just encourage parallel importing. If something is sold in India for half the price it costs in Australia, encourage Indian vendors to reimport it to Australia.

      This is all about price discrimination, which will continue for as long as companies can get away with it. With AIDS drugs, countries effectively had to decide to make them themselves before the manufacturers caved.

      • RocK_M
        Posted 31/10/2012 at 10:29 am | Permalink |

        Except existing trade agreements means gray importation can be technically illegal. And any global company with enough financial clout can pursue this at court.

        I’ll just point out when Sony aggressively litigated against online shops that chose to grey import PSP’s and PS3’s when it was released a few years back because Jp units came before NA units and EU/AU came even later. Note we’re not talking about jail-broken units here. Plain off the box new units just grey imported from Japan for resale.

    7. David Brooks
      Posted 30/10/2012 at 7:09 pm | Permalink |

      The Americans believe in a free market. But there is nothing “Free” about international agreements. Our parliaments should be looking after the interests of the consumer in Australia, but they are primarily scared of the big companies. There are several ways to cut companies (including software companies) down to size. It would take great courage from the legislators.
      1. Remove all copyright laws.
      2 Remove the protection that makes companies a “person” before the court.
      3. When a commodity is sold – it remains sold. Get rid of those stupid EULA so called agreements

      Just three steps towards a FREE market. (A free market is one where trade takes place without coercionand no privilege on either side.)

      • Bpat
        Posted 31/10/2012 at 8:23 am | Permalink |

        I agree that the pricing needs to be fixed but I wouldn’t say remove all copyright laws. If you have spent thousands of hours building software, painting a picture,etc. You should have protection against someone duplicating it and selling it without your permission or giving you your royalties.

    8. socrates
      Posted 30/10/2012 at 7:27 pm | Permalink |

      Of course the Americans (and the Europeans) robustly believe in free markets. Free for them to screw endusers anywhere in the world except in their domestic jurisdictions, where they are subject to some sensible (and necessary) anti-trust and anti-RPM provisions.

      And a fourth suggeation to add to David’s above three:

      4. Abolish all restrictions on parallel importing to allow a free market to operate in this country.

      • David Brooks
        Posted 30/10/2012 at 9:22 pm | Permalink |

        Hear! Hear! Socrates. 100% agreement. It’s called free trade. Not this “international agreement” con job.

    9. Martin
      Posted 30/10/2012 at 9:04 pm | Permalink |

      I believe it’s all a waste of time. Blind Freddy can see that a major reason for cheaper prices in the US is that cutthroat competition leads to price cutting to the point that they make close to nothing on sales there. They are loss leaders. They have to make the money back somewhere else. Guess where? In smaller markets.

    10. Goddy
      Posted 30/10/2012 at 10:30 pm | Permalink |

      Good, if there’s anything the Politicians should get worked up over, it’s this. I hope they stick their toes so far up the IT companies arses that they will scream for the prices to be brought down to where they should be within moments.

    11. On second thoughts, anonymous
      Posted 31/10/2012 at 1:03 am | Permalink |

      (None of the following should be attributed to my employers, past or present)

      Pricing is Australia has traditionally been higher for imported goods.

      The genuine reason for that is that costs were higher. We had high import duties. We had to pay support staff which weren’t busy all the time. We had to pay for the development and placement of our own advertising campaigns. For example, when Imagineering first distributed Microsoft’s products Imagineering did all of the support and all of the markettting, even printing the (then hefty) product manuals here in Australia.

      The Australian economy is massively more efficient than it used to be: import duties are massively lower for electronics and software, Customs’ clearance is weeks faster than it used to be (and with consumers less and less interested in physical holders of bits, moving physical software is less and less of a concern). The globalisation of corporations means marketting development are done from the overseas’ headquarters, with only minor edits and placement done in Australia. Support is much more efficient. If support is run in Australia then it is as part of a global 24×7 support organisation. Web applications and e-mail allows support tasks to queue for much longer than were acceptable in the days when support was predominately done on the phone, so support staff are much more higher utilised.

      Another genuine reason for past higher prices is that computers were not then mainstream. Computer companies now reap the benefits of economies of scale. Once upon a time you would employ a “programmer” and then spend the next few months teaching them how to use the mainframe you owned. There were about eight manufacturers and they were all different, and then they were all lovingly customised differently, so it was unrealistic to expect staff from elsewhere to be able to use your computer. In those times I was competent with 8 operating systems and over 30 programming languages. Today it is expected that people can drive a WIMP interface and a touch interface and programming isn’t required for most of what people do with a computer.

      You’ve also got to remember that Australia has a small demand for technical goods. The has changed for a lot of electronics and software, as they have become tools of business and consumer goods. But you don’t have to most too far away from those to talk with an importer who thinks a sale a week is good news. For example, one manufacturer of electronics test equipment sells more into MIT than into the whole of Australia.

      The less genuine reason fpr historically high prices is geographical price differentiation. This used to be easy, you’d jack the price up in Australia as far as the market would bear. The parliament had foolishly passed strong laws against parallel importation; importation was a dark art; and overseas’ manufacturers wouldn’t sell to Bruce Bloggs because the manufacturers desperately needed to keep the distributor in Australia on their side (because they were doing the marketing, the warranty repairs and so on). The folk in Australia mostly knew no different, apart from hobbists who read the US and UK technology magazines, saw the prices in the ads and asked “wtf”? But distributors could easy apply a bit of fog and FUD to wave those questions go away.

      Then a few things happened.

      First off the rank was containerisation of shipping and air freight. This necessarily required the computerisation of import/export to tracks who’s shipment was in which container and to pack and unpack the containers without losing people’s packages. Customs was then under the hammer to computerise the entire import/export paperwork chain. This cleared out a lot of the oddities and simplified and harmonised international customs and shipping practices.

      Secondly, a whole lot of small factors: the massive drop in the price of shipping and air freight (much of it due to larger ships and aircraft); the fast turn around off docks and through customs; the Hawke/Keating simplification of import duties; the Howard GST removing almost all duties and tariffs, or at least dropping them to single digits; the removal of the most onerous of the parallel importation laws; the global acceptance of credit cards; and the SWIFT system allowing inter-bank deposits.

      Thirdly, the Internet informing consumers. It told them that prices where lower overseas, although we’d long known that. And it helped them find retailers who were willing to ship to Australia. You’ve got to remember that when Amazon first started most of the questions by Australians were “is it legal to use it?” The positive experience with Amazon went a lot way to validating all international e-commerce, not just Amazon for book imports.

      It also allowed customers to share information about products. In some products it became very apparent that the goods sold in Australia simply didn’t measure up. For example, software release dates would be pushed back in Austraila and the unsold product from overseas’ markets sold here at full price. Or a good sold packaged in the USA would be brokem into multiple parts in Australia.

      The Internet works the other way too. You can imagine the horror of some manufacturers when then compared customer’s experiences against what they were being told by their overseas’ distributors. Having said that, manufacturers are wary of disintermediation, if only becuase they aren’t really manufacturers and fear a direct customer-factory relationship (and when will Foxconn start marketing its own designs, as Giant has done so successfully with bicycles).

      The fourth factor is the Chinese deflation. The cost of physical goods has fallen so much due to the lower prices of Chinese manufacturing that the cost of the intellectual goods have become a major proportion of the price. Thus countries with high prices for these goods can be at a serious competitive advantage. This is because computers aren’t only consumer goods, they are capital goods too (ie, are used to make other goods). Microsoft are leading the pack here, trying to make about $100 from every Windows 8 tablet sold.

      There is a downside to software now bing a consumer product — fashion and branding. Why do people use Microsoft’s products when there are free software alternatives? This hints that price is only a small part in people’s choice of software. If people are willing to spend $1000 more for the Apple branding then should parliament do anything to save those foolish people from themselves? The government doesn’t stop bogans buying Von Dutch or ponces buying Dior from paying over the odds.

      I’d encourage the committee to consider changes which will encourage competition where competition is possible and prevent expoitative pricing where competition is not possible. This has everything to do with parallel importation laws, patent policy, import taxes and duties, and trade practices law.

      I’d encourage the committee to look at the first sale doctrine as it applies to software licenses. At the moment you can import a device (with its software) but software license contracts undermine the first sale doctrine by preventing the software license to be resold along with the device.

      I’d encourage the committee to look at is the “lack of manufacturer warranty”. It seems to me that if a distributor is providing a repair service for a product, then competition would be enhanced by it not being permitted to decline the repair (at a fair price) of parallel imported goods.

      • Bruce H
        Posted 01/11/2012 at 4:58 pm | Permalink |

        I’m hoping Sir, that you actually made a submission.

    12. Posted 31/10/2012 at 1:49 am | Permalink |

      This video very clearly demonstrates why and how the price discrimination occurs. Asking your opposition why they are beating you at your own rules is not that bright.

      http://www.youtube.com/watch?v=2FVqnQm-w14

      • bob
        Posted 01/11/2012 at 6:37 pm | Permalink |

        That video hasn’t got anything to do with physical units. The most major price gouging occurs in digital downloads such as Steam, Microsoft and Adobe’s online store. But in any case we still get gouged for buying them from the companies.

        Photoshop works out like this:

        Full Version. English.

        Downloaded version:
        USA – $700 USD ($675 AUD)
        Australia – $1062 AUD

        Shipped:
        USA – $700 (no change)
        Australia – $1168 (price goes up a whopping $106 to ship a box).

        It is a disgrace.

        The government should subpoena them, introduce legislation to remove blocks to parallel importing, increase the threshold that Harvey Normal was complaining about, remove ridiculous pro-USA copyright laws and make geoblocking Australian users illegal.

        Then they will take notice.

        • bob
          Posted 01/11/2012 at 6:37 pm | Permalink |

          I meant digital units at the start there.

    13. ThePhil
      Posted 01/11/2012 at 8:43 pm | Permalink |

      Actually I wasn’t that clear in hindsight, what I am saying is they can’t undercut (with the digital) even the box product in the Aussie stores as it would put all the stores offside then they wouldn’t sell any of their stuff (over time).
      The numbers was showing how an aussie store box price ends up so much more than a US box store price, as they would have the same consideration of not undercutting their US stores. If they got rid off all those import duties and gst for the Aussie retailer then at least they would be closer to the US shops just postage the diff.

      That $106 to ship a box, steep huh? If I was a shop I’d be pretty dark about my supplier undercutting me and steer customers to an alternative.

      But the subpoena won’t help, this is a pretty easy concept, Adobe is just in a great position right now and the extra gov’t charges just help them more, they must be laughing to themselves that our pollies are so dumb. So they just feed them all that unquantifiable shit like, ‘cost of doing business’, warranties, the’ve probably got lobbyist working on getting the gst increased.

      They could have just asked any retailer or economist what the scene is. They should just create a level playing field or get rid of gst/duties completely if you can drive a truck through the anomolies.

      These guys just piss me off ‘cos I reckon they know this with all their advisers and they just want to look like they are being tough, you could see this coming from 5 years ago.

    14. Posted 02/11/2012 at 10:15 am | Permalink |

      If you look and compare, the harsh reality is these price differences are industry wide. Servers, storage arrays, hard disk drives, RAM etc from the major Enterprise product vendors (Oracle, IBM, HP) is significantly cheaper in the US and Europe than it is here in Australia. To add insult to injury, much of it is actually manufactured in our region!
      CIO’s and IT Managers are more cost conscious than ever right now and the purse strings are unlikely to loosen in the foreseeable future when it comes to hardware or software.
      This has driven an increasing amount of decision makers to source some of their hardware out of region. With savings of 30% or more for exactly the same product, often combined with better lead times, it’s a compelling reason. http://www.touchpoint.com.au
      When the vendors level the global playing field and make pricing fair, they’ll actually attract more in country business.

    15. Dominic Driver
      Posted 02/11/2012 at 12:00 pm | Permalink |

      No mention of Cisco Systems having a 38% higher AUD list price than USD, and increasing it by 9.2% in July, despite the exchange rate being pretty much on parity for two years? Anyone?

    16. ThePhil
      Posted 02/11/2012 at 1:43 pm | Permalink |

      Not just IT everything is cheaper o/s. If a UK brand gets a hard drive in from China, they pay duty when it comes in to UK at the border, then if an aussie store goes to buy it for stock (from the UK brand) they will pay the duties again to get it into Oz at our border, but if the customer went direct to the UK brand/store that would avoid the double dip on duties. Wow confusing. But I think that is a fair chunk of the discrepancy.

      I suppose then if the Brand had a distribution set up in Australia and got direct from the China factory, everything should be even-ish, hmmm? Maybe this just doesn’t happen much.




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