23.107    The basic compilation framework for the ICT satellite account is the Supply and Use framework of the ASNA. It was adapted to focus on ICT products and the industries producing or distributing those products. Fundamentally, the system consisted of a supply table that tracked the supply of ICT products from imports and from Australian producers, and a use table that tracked the use of those products by industries, government, households and for export.

23.108    The concepts for the ICT satellite account were consistent with the ASNA and are outlined below.

23.109    The value of ICT output was the market value of ICT goods and services produced within Australia. ICT output may be produced by units in any industry, though in practice the great majority of ICT output was produced by a small number of industries.

23.110    Capital goods produced on own account for own use were valued according to their estimated market value, or, if this was not possible, on the basis of production costs; that is, the value of labour and non-labour costs, and consumption of fixed capital used to produce the capital good. There are two significant ICT-related items of capital work produced on own account - own account computer software and own account production of telecommunication assets. The latter item relates wholly to telecommunication service providers and comprises the physical infrastructure required to put various telecommunication equipment in place (e.g. construction of mobile phone towers). All industries engage in producing computer software on own account.

23.111    ICT gross value added at basic prices was measured as the value of output of ICT goods and services less the value of intermediate consumption inputs used in producing these ICT products. ICT gross value added is comparable with estimates of the gross value added of conventional industries such as mining and manufacturing as presented in the ASNA.

23.112    ICT GDP, on the other hand, measured the gross value added of the ICT industry at purchasers' prices. It therefore included taxes (less subsidies) on ICT related products. ICT GDP has a higher value than ICT gross value added.

23.113    ICT GDP was a construct to allow comparison with the most widely recognised national accounting aggregate, GDP. While it is useful in this context, the ICT gross value added measure should be used in comparisons with other industries and between countries. There is no generally accepted way to allocate deductible taxes such as GST to industry, and substantially different results can be obtained for industry GDP depending on the method chosen. This is a further reason for gross value added to be the preferred measure for industry comparisons.

23.114    ICT investment was gross fixed capital formation plus changes in inventories relating to ICT products. Gross fixed capital formation is the value of acquisitions less disposals of new or existing fixed assets. Assets consist of tangible or intangible assets that have come into existence from processes of production, and that are themselves used repeatedly or continuously in other processes of production over periods of time exceeding one year

23.115    Government final consumption expenditure is current expenditure by general government bodies on services to the community such as defence, public order and safety. Because these are provided free of charge or at prices which cover only a small proportion of costs, the government is considered to be the consumer of its own output. This output has no directly observable market value, and so is valued in the national accounts at its cost of production. In 2002-03, general government bodies in Australia did not produce any market output that could be considered ICT in nature and therefore government final consumption expenditure on ICT products was estimated as zero.

23.116    Current expenditure by general government bodies on such things as telecommunication services and computer services was treated as intermediate consumption by these units.

23.117    The scope of the ICT satellite account is effectively determined by the range of products (goods and services) defined as information and communication technology. At the time, the satellite account was published the Working Party on Indicators for the Information Society convened by the OECD has produced a draft 'Classification of ICT Goods' and was working on a classification of ICT services. The ABS had significant input into this work and the classification used by the ABS in ICT Industry Survey (ICTIS) 2002-03 was broadly consistent with, but not identical to, the OECD classification as far as it relates to goods. The OECD definition included a broader range of goods than the Australian definition. The Australian definition only included ICT goods if they were able to be networked or were components of goods that could be networked. It also excluded a range of medical, scientific and audio visual equipment.

23.118    The scope of 'ICT industries' relates closely to the set of ICT products defined above. ICTIS 2002-03 was a major data source for the satellite account and covered the main industries involved in the production and distribution of ICT goods in Australia. Its scope was broadly consistent but not identical with the OECD ICT Sector definition. The Australian definition only included ICT products if they were able to be networked or were components of products that could be networked. Units that manufactured or distributed products such as industrial process equipment were included in the OECD classification but excluded from the ABS classification.

23.119    Within the 'ICTIS industries', businesses were further classified as either ICT specialists or non-specialists. Businesses in these industries were defined as ICT specialists if more than 50 percent of their income was derived from production of ICT outputs.

23.120    An alternative view was to group all similar activities together as an 'industry', regardless of whether the ICT products were produced as primary activities of businesses that were commonly thought of ICT producers, or as secondary activities of businesses that were not regarded as ICT producers. For example, ICT products such as software produced as a secondary activity by businesses (and government organisations) outside the ICT industries would be included. Likewise, non-ICT products produced by ICT specialist industries would be excluded. This leads to a wider definition of the 'ICT industry'. The disadvantage of this view is that estimates of ICT gross value added on this basis require use of assumptions because it is not possible to collect all the required information on the costs of producing ICT products or the value of output.

23.121    This wider activity concept of an ICT 'industry' is clearer in practice where it involves actual sales of ICT products. Defining the boundary becomes more complicated where ICT goods and services are produced in-house for own use. For example, a bank (classified to the financial services industry) may use its own employees to provide help desk services, data processing, system maintenance and software development, etc., or it may purchase these services from other businesses. Where these services are purchased, and regardless of the source of the purchase, they become part of the economy-wide ICT industry for inclusion in the satellite account. In the national accounts, goods and services produced for own use are not regarded as part of output where they are consumed as part of the process of producing other goods and services. In that case, their value is reflected in the other outputs of the business; in this example, financial services. In-house ICT products are included as products in their own right in the national accounts, being products in the nature of gross fixed capital formation (e.g. software development).

23.122    In principle, the scope of the ICT satellite account could conceivably be defined to include all ICT activity including in-house activity. Using the above example of a bank, help desk activities could be separately valued and included as part of ICT output and value added. The services would be deemed as being both 'sold' and then 'purchased' by the bank for input to the production of financial services. This quickly becomes an artificial construct. Businesses make different decisions about which functions to outsource and which to provide in-house across a whole range of activities, including accounting, payroll, transport, storage, recruitment and so on. In practice, it is not possible to collect the information required or to satisfactorily value such activities provided in-house.

23.123    An 'economy-wide' scope was adopted in the satellite account. ICT products produced in-house for own use were excluded from the output and use of ICT products, apart from in-house production of ICT capital goods (software and telecommunication assets).

23.124    The ICT satellite account data was sourced primarily from ABS collections, namely:

• ICT Industry Survey (ICTIS)
• Economic Activity Survey
• Balance of Payments and Trade
• Government Technology Survey
• Household Use of IT Survey
• Business Use of IT Survey
• Internet Activity Survey
• Surveys of Research and Experimental Development
• Household Expenditure Survey
• Labour Force Survey

23.125    As previously mentioned, the basic compilation framework for the ICT satellite account was the national accounts 'supply and use' system. It was adapted to focus on ICT products and the industries producing or distributing those products. Fundamentally, the system consisted of a supply table that tracked the supply of ICT products from imports and from Australian producers, and a use table that tracked the use of those products by industries, government, households and for export. In order to satisfy the identity that the supply and use of products must be equal, discrepancies due to deficiencies in the source data were identified and resolved. A great strength of the framework was that it facilitated this data confrontation and provided a basis for optimising the quality of the overall estimates in the face of deficiencies and gaps in data coverage.

23.126    International experience showed that the measurement of ICT transactions was not easy, particularly given the intangible nature of software, the licencing and leasing arrangements involved and the bundling of ICT products. It was therefore inevitable that a range of significant data and other issues required close attention in producing the ICT satellite account. An outline of these issues is provided in Appendix 5 of the Australian National Accounts: Information and Communication Technology Satellite Account, 2002-03 (cat. no. 5259.0). Inevitably, a number of judgement calls were necessary to integrate the data. Consequently, the results were considered experimental.