Australia: Australian competition regulation: What should we expect for 2012?

Last Updated: 2 March 2012
Article by Martyn Taylor


The past year has seen some interesting developments in Australian competition regulation. Further substantive developments will occur during 2012. Dr Martyn Taylor briefly summarises some of these developments and gazes into the crystal ball for the coming year.

Martyn recently joined our global competition team as a Partner in the Sydney office. He is the author of the book 'International Competition Law' and contributes to 'Merger Control Worldwide'. Martyn also co-authors CCH's comprehensive commentary on the Competition and Consumer Act 2010 (Cth). Martyn has a PhD in competition law and some 18 years' first-tier experience in competition and regulatory matters.

Norton Rose Group's global competition team now ranks as one of the world's 'top 20' competition teams.

Changes at the ACCC – a strategic approach with a pragmatic focus

In the past year, Graeme Samuel ended his eight year tenure as Chairman of the Australian Competition and Consumer Commission (ACCC) and was replaced by Rod Sims. Peter Kell departed as Deputy Chairman. Some internal restructuring has also occurred within the ACCC.

Graeme Samuel's legacy is a strong and well-respected organisation. The ACCC is consistently regarded as one of the best competition regulators in the world. Under Rod Sims, the high quality of ACCC decision-making will continue. Rod Sims is very highly regarded and brings extensive private and public sector experience to this role.

Rod Sims has indicated he expects the ACCC to be strategic, not reactive. He will continue to give priority to those areas that have the greatest potential for consumer detriment or where market structures need most support. He also believes the ACCC should litigate more frequently. He is prepared to take action even if the law is unclear and success is not assured, suggesting a tougher enforcement approach.

Following the recent Metcash decision, we also anticipate the ACCC will wish to test the commercial veracity of its competition theories to a higher degree. The ACCC under Rod Sims will likely be more pragmatic and commercially nuanced in its analysis of competition issues.

Merger review – greater evidence-gathering and commercial analysis

In the last financial year, the ACCC undertook around 140 merger reviews. Around 80 per cent of these acquisitions were unconditionally cleared while another 15 per cent were either withdrawn or were the subject of undertakings to resolve ACCC concerns. Only seven acquisitions were formally opposed by the ACCC and only three of these publicly. These statistics are consistent with previous years and indicate that only a very small proportion of acquisitions reviewed by the ACCC give rise to serious competition concerns.

One of the acquisitions publicly opposed by the ACCC was grocery wholesaler Metcash's proposal to acquire the Franklins supermarket business. In December 2011, the full bench of the Federal Court dismissed the ACCC's application to declare that acquisition in contravention of section 50 (prohibited acquisitions) of the Act. The Metcash decision involved the most significant merger review litigation since 2003 and involved a rare opportunity to obtain Federal Court guidance on the ACCC's approach to merger review.

The practical outcome of Metcash is that the Federal Court expects any competition analysis to be pragmatic and commercially focussed.

  • The Federal Court confirmed that economic theory must be linked to commercial reality. Any competition analysis must apply that theory in light of actual market circumstances as supported by objective evidence. The ACCC subsequently issued a press release to confirm that it would undertake its competition analysis based on commercially relevant facts, assessments and evidence and not speculative possibilities.

While Metcash occurred in a merger review context, it also has practical implications for the ACCC's general approach to any competition analysis:

  • A pragmatic and commercially focussed approach is necessarily fact intensive. We anticipate a greater focus on ACCC information gathering to support any future competition analysis.
  • The ACCC may issue more statutory 'section 155' notices to compel the disclosure of information. Section 155 notices are the ACCC's primary instrument for information gathering where information is not voluntarily disclosed by a party.
  • The ACCC could also encourage third parties to substantiate their submissions during the ACCC's 'market inquiry' consultation processes so that the ACCC has cogent evidence of anti-competitive effects.

For the 20 per cent of mergers not unconditionally cleared (some of which are withdrawn), we anticipate a greater dialogue with the ACCC and a more information-intensive approach. Ultimately, this approach may lead to slower ACCC decisions, yet may also provide a greater opportunity for engagement with the ACCC to identify and resolve specific concerns.

During 2011, the Act was also amended so that acquisitions in 'non-substantial' markets are subject to section 50. This amendment addressed a policy concern that an incremental 'creeping' acquisition could have a substantial competitive effect in a local market, but may escape regulation if that local market is not sufficiently 'substantial' under the Act. While long awaited, this amendment may result in little change from historic practice as the ACCC has already been recognising the existence of local markets in its relevant merger reviews.

Co-ordinated conduct – price signalling will soon be regulated in banking

A controversial development during 2011 was the enactment of 'price signalling' prohibitions into the Act. The prohibitions will take effect in June and are proposed (by regulation) to apply to all deposit-taking, and advances of money, undertaken by an authorised deposit-taking institution.

Private disclosure of pricing information to competitors will be prohibited. Public disclosure of certain information will also be prohibited where the disclosure has the purpose of substantially lessening competition. Certain exceptions apply, including where a public disclosure is made in the ordinary course of business.

While the prohibitions will initially apply only to banking activities, they could well be applied more broadly in the future by Ministerial regulation. Political discourse could occur in the future for the application of these prohibitions to other economic sectors, such as petrol retailing and groceries.

Anti-competitive behaviour – a tougher approach with greater penalties

During 2011, the ACCC successfully prosecuted various instances of alleged anti-competitive behaviour. In December 2011, for example a major supplier of tickets for entertainment events was fined $2.5 million for taking advantage of substantial market power. In November 2011, a further airline was fined $5.5 million for price fixing. Proceedings against another seven airlines are continuing. The ACCC is currently involved in a major prosecution in the cement industry.

Rod Sims has emphasised that a successful litigation outcome for the ACCC includes publicity and clarification of the law, irrespective of any 'win' or 'loss'. He has indicated a 100 per cent success rate would suggest the ACCC is too risk averse in taking enforcement action. He has also signalled the need for the ACCC to test the law on important issues. We therefore anticipate the ACCC will be less risk averse in commencing enforcement action, suggesting a tougher enforcement approach. Based on comments to date, we expect priority areas for the ACCC during 2012 will include supermarkets, telecommunications, airports, and any instances of cartel conduct.

Given recent views of the Federal Court, we expect financial penalties to continue to increase. The ACCC and Director of Public Prosecutions have not yet sought imprisonment for any contravention of the new cartel provisions, but they may do so (consistent with international trends) if an appropriate opportunity arose.

Regulated infrastructure – streamlining the national access regime

In a speech in November 2011, Rod Sims was critical of the effective operation of the national infrastructure access regime in Part IIIA of the Act. He noted it has taken some seven years for Fortescue to obtain access to railways in the Pilbara. It has also taken some five years for Virgin to obtain access to aeronautical services at Sydney Airport. He indicated that the ACCC's view is that the national access regime is not working effectively and there is a need to streamline the approach.

Rod Sims highlighted that an approach that was working effectively was for State or Federal governments to make specific, upfront decisions to require access to infrastructure under Part IIIA, thus avoiding delays in the Part IIIA declaration process. Such an approach was undertaken in the context of access to grain port terminals for wheat export. A similar approach was adopted in the context of rail access arrangements in the Hunter Valley.

Given the ACCC's focus on this issue, we expect Government interest in streamlining the Part IIIA process. We also anticipate that there will be a greater likelihood of State and Territory Governments requiring infrastructure to be 'open access' (and potentially directly subject to Part IIIA) as a condition, for example, of obtaining Government consents or approvals.

Telecommunications – major reforms to support the NBN rollout

During 2011, the most significant reforms in the last 15 years were made to the telecommunications access regime in Part XIC of the Act. These amendments streamline the application of that access regime and establish a new framework for the regulation of the National Broadband Network (NBN) as it is progressively rolled out.

A fundamental change to the application of Part XIC has been the removal of the ACCC's powers to arbitrate disputes over access to 'declared' (regulated) telecommunications services. Rather, the ACCC now determines default terms and conditions of access, including pricing, via access determinations. In the absence of commercial agreement, those default terms automatically apply and can be supplemented by 'binding rules of conduct' issued by the ACCC if there is an urgent need.

NBN Co Limited is now subject to a self-contained regime within Part XIC. NBN Co is only permitted to supply services that are regulated under Part XIC. Regulation is automatically imposed if NBN Co supplies a service under a 'standard form of access agreement' or gives a voluntary 'standard access undertaking' (SAU). Alternatively, the ACCC may 'declare' that a service is subject to regulation following a public inquiry if the requisite statutory criteria are met.

NBN Co is subject to access determinations and binding rules of conduct, but is also subjected to new non-discrimination requirements. These requirements prevent NBN Co discriminating between access seekers of the same class, effectively requiring that common contractual terms and pricing must be offered to all parties seeking to acquire services from NBN Co.

Pursuant to the new regime, NBN Co has sought approval from the ACCC for its SAU. Telstra has also sought approval from the ACCC for its own 'structural separation undertaking' (SSU) pursuant to which Telstra will progressively migrate customers from its legacy copper access network to the new NBN Co fibre access network. We expect the SAU and SSU to be approved by the ACCC later this year, meaning that the NBN will become a practical reality for the Australian telecommunications sector.

However, it remains an open question whether the NBN will proceed if the Government were to change. Current Liberal Party policy is that the NBN would be cancelled and potentially replaced by a private sector broadband solution with less reliance on Government funding.

Energy – implementation of the National Energy Customer Framework

The Australian Energy Regulator (AER) is part of the ACCC but operates with an independent three member Board. Its functions encompass the wholesale electricity and gas markets and network infrastructure. The AER administers various national energy laws that aim to encourage competition in upstream and downstream markets by ensuring access to monopoly infrastructure and by providing the frameworks for contestable and competitive energy markets.

Under the next major stage of the national energy reform process, the AER will take on new roles in energy retail markets from 1 July 2012. A new National Energy Customer Framework (NECF) will apply that involves the harmonisation of state-based regulatory frameworks (excluding retail price regulation and community service obligations) into a single set of national rules.

The NECF will apply to the relationships between energy customers, retailers and distributors, particularly in relation to terms of engagement. It also covers small customer dispute resolution, credit support arrangements, and retailer of last resort arrangements. The NECF will not apply in Western Australia and the Northern Territory.

The AER's responsibilities under the NECF will include granting retailer authorisations and exemptions, approving retailers' policies for dealing with customers facing hardship, monitoring market activity and retailer behaviour, administering a retailer of last resort scheme, and enforcing compliance with the Law.

Consumer protection – the benefits of a harmonised national regime

On 1 January 2011, a new national consumer-protection regime came into effect, known as the 'Australian Consumer Law' (ACL). The ACL replaced around 20 existing national, State and Territory laws with a single harmonised law as set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth). The existing consumer protection provisions in the Act have been moved into that Schedule.

The ACL is administered and enforced jointly by the ACCC and the State and Territory consumer protection agencies, but with the ACCC taking a lead role in co-ordinating enforcement activity. As part of the reforms, new enforcement tools and remedies have been provided to the ACCC, including the capacity to require traders to substantiate any claims. The ACCC also has the power to obtain redress on behalf of consumers, and to issue infringement and public warning notices.

Penalties under the ACL include infringements notices for less serious offences that attract penalties of $6,600 for corporations and $1,320 for individuals. For serious matters where court action is necessary the ACCC is able to pursue penalties of up to $1.1 million for corporations and $220,000 for individuals for each contravention. Such penalties can aggregate over multiple contraventions to significantly greater amounts:

  • In April 2011, civil penalties of $2.7 million were awarded against the perpetrators of an alleged small business scam involving the issuing of misleading invoices for online business directories. The ACCC also successfully obtained non-party redress by having some 4000 contracts declared void thereby preventing the collection of over $6 million from the scam.
  • In July 2011, Federal Court handed down the largest civil penalty to date in a consumer protection case taken by the ACCC. Optus was ordered to pay $5.26 million for misleading and deceptive conduct in advertising its broadband internet plans.

We anticipate that the ACCC will continue to give ACL issues a high degree of priority during 2012 as the ACCC tests its new powers (in conjunction with State and Territory agencies) and seeks to ensure the effective operation and application of the new regime.

During 2011, the unconscionable conduct provisions in the ACL were amended to include a list of interpretative principles. The provisions were also simplified and unified in their application to businesses and consumers. The intended effect of these amendments is to ensure the law evolves in a consistent manner with clear guidance given to relevant stakeholders. Rod Sims has indicated he will seek to apply these provisions to a broader range of circumstances than has historically been the case, including door-to-door energy selling and potentially supermarkets.

Carbon pricing – the ACCC has a price oversight role

On 1 July 2012, the government will introduce a 'carbon price' that will apply to certain greenhouse emissions. As with the historical implementation of GST, the ACCC will have a compliance and enforcement role regarding claims made by businesses as to the impact of the new law on the price of their goods and services

The ACCC has been directed by the Government to make it a priority to investigate and, where appropriate, initiate proceedings against businesses who engage in practices concerning the impact of a carbon price that contravene the ACL. The ACCC will also seek to educate businesses and raising awareness amongst consumers, hence we can potentially expect significant media coverage of carbon price issues later this year.

International trends – globalisation continues to raise cross-border issues

Consistent with previous years, we are noticing a greater volume of the most serious competition matters have a cross-border dimension. Globalisation and the rise of the Internet mean that competition issues do not stop at territorial boundaries.

The ACCC has a continued focus on co-ordinating its investigation and enforcement activities with offshore regulators. The ACCC's role in the International Consumer Protection and Enforcement Network has seen it play a leading role in the fight to disrupt scam activity, particularly on the Internet. The ACCC has also played an important role in a number of global cartel investigations and has indicated that a number of merger decisions during the last financial year required cooperation with overseas counterparts.

Norton Rose Group's global competition team now ranks as one of the world's 'top 20' competition teams. The team has significant experience acting in competition matters with a cross-border dimension, including global cartel investigations, cross-border arrangements and multinational mergers.

Please feel free to contact us if you have any questions arising from any material contained in this publication.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Martyn Taylor
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