Brandis' futile plan to 'stop the bytes'

So you’re being ripped off, robbed blind and treated like an idiot? So what!

New government legislation will add about $100 million a year to the cost of providing broadband in Australia and this may mean that your annual internet bill could rise by about 5 per cent.

The cost to Australian business will be substantial. Telcos will be given the onerous task of ‘stopping the bytes’: identifying pirates and additional compliance costs. The rest of Australian business will have to bear the cost of monitoring corporate networks to prevent illegal file-sharing, and public Wi-Fi providers could be fined if their service is used for illegal file-sharing.

Get the picture? Well, it is even worse than you might first think.

What’s the problem?

In a report by iTnews on June 16, the Australian Internet Industry Association (AIIA) yet again defended the blatant rip-off in the legislation, saying that the high hardware, software and service charges are “typical” and “justifiable”. The AIIA called on the government to “avoid changing laws to clamp down on price disparities, in the name of competition”.

But the price gouging by ICT companies – typically, the large multinationals are leading the way -- is only a part of the complex web of deceit being practiced by an industry seeking to perpetuate a system that has led to Australians being ripped off for decades.

And the hardware, software and service price rip-off has been aided by a practice known as ‘market segmentation’, where the multinationals have divided the world into regions so that it is easier to set different prices in each zone for the same goods and services.

The final kick in the guts for the Australian taxpayer is the use of tax havens, by companies both large and small, to minimise tax paid in Australia and it is not just multinationals that subscribe to this practice.

The dodgy tax minimisation practice has finally become a target for international action with governments around the world, including the Australian government, deciding it’s finally time to do something about tax minimisation.

On June 11, Prime Minister Tony Abbott, speaking at the New York Stock Exchange, said “I am not saying that it is easy to resolve it but I think the broad principle should be that, generally speaking, people should pay tax in the countries where they make the money.” He continued, “People should pay tax where they raise their revenue and I think that is the kind of principle that all of us can agree on. We have now got to try to build a system of rules that fairly puts that into practice.”

As the Australian government looks for international assistance to take on the might of the tax minimisation industry, the French government recently issued Google with a tax assessment that could be as much as €1 billion ($A1.7bn) in back taxes for the past couple of years.

Piracy and the cost to Australian business

Consumers are increasingly looking overseas for respite from the price gouging and this has a negative effect on Australian businesses trying to compete in the global digital economy.

But as the recent barb-throwing between the entertainment distribution industry and the consumer group Choice has shown, there are entrenched views over what the biggest problems are and who is to blame.

Let us first consider piracy and the rampant practice of downloading movies and television shows using peer-to-peer systems.

Piracy is a breach of the law, causes job losses and harms the viability of Australian companies.

Equally, companies that overcharge, fail to provide flexible access to products and services and fail to deliver products and services to consumers when they become available internationally are also part of the problem.

Traditional practices, including the subscription model used by a majority of Australian digital content providers such as FoxTel, have come under scrutiny in recent years and increasingly companies are coming under fire for failing to introduce more flexible payment approaches, including a pay as you go or pay per view model.

Industry appears to be close to convincing the government to introduce anti-piracy legislation similar to that introduced overseas, such as in New Zealand.

But will anti-piracy legislation stop piracy? No.

In a blog post on June 23, iiNet chief regulatory officer Steve Dalby discussed site blocking and asked the question, “Does it work?” Dalby writes: “We know the pointlessness of simply blocking sites like The Pirate Bay, when they can change their address in minutes. The internet has no gate that we can put a padlock on. There are many alternative ways for infringers to access their favourite movies and TV shows online.”

Initially anti-piracy legislation will give people cause for concern, but it will only be a matter of time before people become expert at using Virtual Private Network (VPN) connections to hide their peer-to-peer downloading as well as to circumvent market segmentation, also known as geo-blocking.

Recently the Attorney-General George Brandis told the Senate: "Australia, I am sorry to say, is the worst offender of any country in the world when it comes to piracy … I am very concerned that the legitimate rights and interests of rights holders and content creators are being compromised by that activity."

What Senator Brandis failed to discuss is why the problem exists and what the government will do to ensure that consumer rip-offs become a thing of the past. The government cannot claim that it is not fully aware of consumer complaints about an industry that thrives on price gouging and antiquated business practices.

And why is the government taking punitive action against the telecommunications industry when similar laws of inspection and disclosure of illegal goods are not in force against shipping and other transportation companies? Because compliance will add a significant cost and achieve very little.

And what will happen when the government introduces the new anti-piracy legislation? The practice will go underground and business will be left with additional costs associated with yet another piece of unnecessary and unworkable legislation from a government that has stated many times that it will reduce red tape and unnecessary compliance costs.

For the telco industry there will be a cost associated with anti-piracy compliance, that takes into account the additional systems needed to monitor internet traffic, issue non-compliance notices and prepare reports for the government agency given the task of overseeing anti-piracy efforts.

Even if the entire activity is automated there will be a substantial cost passed along to consumers that could add up to 5 per cent to broadband accounts. The additional cost will depend on how much effort must be expended to identify and stop pirates.

It is likely that the Federal Police in conjunction with the Australian Communications and Media Authority will be responsible for overseeing regulations and enforcement, and the additional costs will reduce their ability to undertake other more pressing activities.

Also on the government’s agenda will be an internet filter that attempts to block Australian access to file-sharing websites. Will it extend beyond the anti-piracy effort? Senator Brandis has not provided guidance on whether VPN and foreign purchasing services will also be blocked.

Step back and see the future

This is one of those occasions when the government needs to stop and listen before acting and it is to the network engineers that the government needs to pay attention.

Going down the path of internet filters, monitoring consumer internet traffic and forcing the telco industry to act as Big Brother is Orwellian. Surely the government can see this?

It will also be a fruitless waste of time and money because consumers will find ways to circumvent whatever legislation the government puts in place. Just read Steve Dalby’s blog post to see how easy it is and how difficult it is to stop.

And how many teenagers will the government charge, fine and potentially put in jail to placate an industry that has treated Australians as cash cows for decades?

What would be more productive would be for the government to set aside industry assistance funding to help Australian business adapt to the global digital economy and to become more competitive.

To achieve this positive outcome the government will need to tackle antiquated business practices that enshrine anti-competitive outcomes including market segmentation, the Australia Tax and subscription access to digital content.