Microsoft caused the government “billions of dollars of damage” when it pulled out of Defence and national security work last year but faced no consequences, a Senate inquiry has heard.
At an inquiry into the influence of international digital platforms, Big Tech companies were also accused of exploiting a “rigged game” of low taxes helped by the PwC scandal, lobbying to water down data protection regulation, and facing scant competition in the cloud market in Australia.
But local technology lobby group, the Tech Council of Australia, has downplayed competition concerns and calls for wide spread regulation, urging law makers to focus on privacy reforms instead.
On Wednesday, local firm Vault Cloud’s founder and chief executive Rupert Taylor-Price told the inquiry that it was very difficult to compete with dominant providers like Amazon and Microsoft for government work.
He said the US giants have an inside track in Canberra and there were little consequences for when issues arise because the government had become so reliant on them to function, pointing to a breakdown between Microsoft and Defence last year.
As revealed by InnovationAus.com, Microsoft sensationally walked away from well advanced negotiations to provide the Australian government with a Top Secret private cloud service last year, disrupting plans for Defence and intelligence agencies.
The breakdown is understood to have angered parts of the government, but Microsoft has continued to win work, including providing cloud services elsewhere for Defence.
Mr Taylor-Price claimed the breakdown last year had cost the government billions of dollars.
“In the more sensitive areas of government, in the defence and intelligence space, Microsoft pulled out of all of their arrangements with government in May last year,” he told the inquiry.
“This resulted in billions of dollars of damage to the government. There are really no consequences as a result of that for those organisations. There is no regulator in place.”
Microsoft declined to comment about the claim made on Wednesday.
Mr Taylor-Price, whose company competes directly with the US providers in some areas, said the multinationals enjoyed other advantages like whole-of-government agreements that reduce barriers to procuring their goods and services across the Commonwealth government.
“This is the equivalent of a banking licence. It’s the ability to go and do business with government in a seamless and free fashion, without the confines of a tender and value-for-money assessments or an individual procurement basis,” he said.
Microsoft’s current agreement through reseller Data#3 is estimated at nearly $900 million over six years, whiles Amazon’s is $174 million over three years. German company SAP is currently renegotiating its $360 million arrangement.
“There are no Australian companies that have these whole-of-government agreements,” Mr Taylor-Price said. “The government has effectively orchestrated a system where big technology companies can come in and sell to government – and small companies would commonly describe the barriers to entry for government as insurmountable for Australian technology companies.”
Fellow Big Tech provider Oracle also pushes up the prices of its software if it is running on platforms it does not own, while Amazon has reduced the interoperability of parts of its system to push customers to move workloads to preferred areas, according to the Vault Cloud chief.
Mr Rupert-Price also took aim at Big Tech’s potential benefits from the PwC tax leaks scandal, after the consulting giant reportedly targeted US tech firms like Google and Microsoft with a workaround for a tax law using the confidential government information.
A Microsoft spokesperson told InnovationAus.com PwC had “never advised us” on tax matters related to the particular law.
Before the PwC scandal was revealed, Microsoft was already under scrutiny for allegedly a vast network of subsidiaries and tax havens to minimise the tax it pays in Australia.
Mr Rupert-Price said taxation was another uneven playing field for local companies.
“We’re running full rates of taxation on Australian businesses,” he said. “Big Tech today is largely untaxed as it goes forward… then the government invites PwC, their tax advisor, in and provides all the sensitive information around how they intend to tax them in the future.
“And then [PwC] hands that information across to those organisations. It is effectively a rigged game.”
Another local tech firm also told the inquiry it was difficult to compete with the multinationals for cloud work.
Former Qantas and TPG technology lead Rob James said Amazon and Microsoft run a “pseudo-duopoly” in Australia.
“For the most part, you’re probably seeing about a 60 per cent to 70 per cent share between both Microsoft and AWS,” Mr James said. “Larger public sector organisations that do have some buying power, that’s less of an issue, but for the small to medium sector that does become a challenge.”
The Australian Institute of Company Directors has also told the inquiry Australian businesses “often have no or very limited bargaining power with Big Tech cloud providers, including limited scope to negotiate terms and conditions and price”.
“Some directors have provided feedback that there is limited or no ability for even large Australian companies to negotiate on terms or price with large cloud providers owned by Big Tech companies,” the group said in its submission.
The Tech Council of Australia, which represents Microsoft and Amazon along with many Australian companies, downplayed the competition concerns.
“I haven’t had that concern expressed to me about big tech companies by my members,” the Tech Council chief executive Kate Pounder said.
Ms Pounder said around 75 per cent of the Tech Council’s members are Australian companies and they had not expressed serious concerns about competition between big and small providers.
“I think the concern is more to maintain those general [competition] structures that have been working well and to think though about the broader regulatory systems in our country, which might make it harder to introduce new products and services.”
The national competition regulator, however, argues current competition laws are “not well-suited” to addressing the range and scale of issues it has identified with digital platforms generally.
Last year it proposed new legally binding codes for specific platform services, including cloud computing, and has opened the door to following the EU’s lead with requiring “switching obligations” for large providers like Amazon and Microsoft.
Ms Pounder urged the government to instead prioritise privacy reforms because they would provide a foundation for change in other areas like artificial intelligence and cyber security.
“The reality is our [privacy] laws in Australia have fallen behind best practice in the rest of the world. And I think there is bipartisan consensus that it’s review and reform that needs to be done,” she said.
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