Australia: Competition Review: November 2015

RECENT ENFORCEMENT DEVELOPMENTS

ACCC takes action against Unique International College after joint investigation with NSW Fair Trading

On 27 October 2015, the ACCC and the Commonwealth (on behalf of the Department of Education and Training) have instituted proceedings against Unique International College Pty Ltd (Unique) after conducting a joint investigation with NSW Fair Trading into the conduct of private colleges.

Unique markets VET FEE-HELP Diploma courses costing $22,000 to $25,000 per course through face-to-face marketing, such as door-to-door sales. In the 2014-2015 financial year, it was paid approximately $57 million by the Commonwealth in relation to over 3,600 students enrolling in its courses.

It is alleged that Unique made false or misleading representations and engaged in misleading or deceptive and unconscionable conduct in breach of the Australian Consumer Law when selling VET FEE-HELP funded courses between July 2014 and September 2015 in NSW. In particular, the ACCC claims that Unique:

  • offered prospective students free incentives in the form of a free laptop; and
  • represented that their courses were free or were free if the student did not earn more than approximately $50,000 per annum, without referring to the fact that a VET FEE-HELP debt payable to the Commonwealth Government was incurred.

The ACCC and Commonwealth are seeking declarations, injunctions, redress for affected consumers (by cancelling VET FEE-HELP debts) and repayment of course fees paid by the Commonwealth to Unique in respect of any VET FEE-HELP loans which are cancelled.

Calvary agrees to remove exclusive dealing by-laws following ACCC action

On 26 October 2015, Little Company of Mary Health Care Ltd (LCMHC) and Calvary Health Care Riverina Ltd (together known as Calvary) have been found to have engaged in exclusive dealing conduct that was likely to have an anti-competitive effect in the supply of day surgery services in Wagga Wagga.

Calvary, a national healthcare organisation, operates day surgery facilities throughout Australia. To operate at Calvary facilities, medical practitioners needed to seek accreditation by LCMHC. On LCMHC accepting the application for accreditation from a medical practitioner, LCMHC and that medical practitioner would enter into a contract that required the parties to comply with LCMHC's by-laws.

From March 2011 to 12 October 2015, Calvary imposed by-laws that meant that medical practitioners wanting to establish competing day surgery facilities risked losing their accreditation to operate at Calvary facilities. Calvary admitted to the fact that they engaged in the practice of exclusive dealing by adopting the by-laws.

In its Amended Statement of Claim, the ACCC did not seek a pecuniary penalty. The Federal Court declared that Calvary had contravened section 47 of the Competition and Consumer Act 2010 as the conduct would likely have the effect of substantially lessening competition in the day surgery market in Wagga Wagga. Calvary was also ordered to pay $100,000 in costs.

RECENT MERGER DEVELOPMENTS

ACCC releases SOI on Brookfield's proposed acquisition of Asciano

A consortium assembled by Brookfield Asset Management Inc. that includes Brookfield Infrastructure Partners L.P. (Brookfield) proposes to acquire 100% of the shares in the Australian freight logistics company, Asciano Limited (Asciano).

Brookfield is a global asset manager with interests in property, renewable power and infrastructure assets. Brookfield's principal Australian businesses are Brookfield Rail in Western Australia and Dalrymple Bay Coal Terminal (DBCT). Asciano's primary businesses include:

  • Pacific National – above rail haulage services across the coal, intermodal and bulk sectors;
  • Patrick Terminals and Logistics – national container terminal operator and provider of stevedoring services to major shipping lines at ports in Sydney, Melbourne, Brisbane and Perth, combined with an integrated landside logistics network; and
  • Patrick Bulk & Automotive Port Services – provider of bulk port and automotive processing services across over 40 sites in Australia and New Zealand.

The ACCC is not aware of any areas where Brookfield and Asciano supply goods or services in competition with each other. However, the Statement of Issues (SOI) (see here) published on 15 October 2015 focuses on the ACCC's concerns that the vertical integration of Brookfield's Brookfield Rail network with Asciano Pacific National above rail business would lead to a substantial lessening of competition in the relevant markets in which above rail services providers compete to haul general freight, bulk grain and bulk ore and minerals using the Brookfield Rail network.

The ACCC is also concerned that the vertical integration of Brookfield's DBCT with Asciano's Pacific National above rail business would lead to a substantial lessening of competition in the relevant markets in which above rail service providers compete to haul coal to DBCT.

Feedback from market participants states that the current access regimes and operational arrangements would be incapable of dealing with all of the vertical integration concerns arising from the proposed acquisition. The ACCC noted the following:

  • Where the infrastructure is of a technical nature and it is vertically integrated with one of a very limited number of users of the infrastructure, an access regime may not be capable of averting a substantial lessening of competition that would otherwise arise.
  • The only way to avoid the risks to competition that are likely to be created by vertical integration is to avoid the creation of a vertically integrated market structure altogether.
  • The access regimes and related regulatory arrangements that apply to the Brookfield Rail network and DBCT, and the operational arrangements that apply to DBCT, are subject to future change that the ACCC cannot take account of at the time of this review.
  • The ACCC recognises that access regimes may be modified to enhance protections against competition issues arising from vertical integration. However, the ACCC considers that where an owner or long-term lessee of significant infrastructure is likely to have a relatively unconstrained ability to discriminate between access seekers (absent regulation), the competition issues that would arise from vertical integration of that infrastructure are better dealt with by maintaining a non-vertically integrated market structure.

Submissions to the ACCC closed on 4 November 2015. The ACCC intends to publicly announce its final view by 17 December 2015.

Proposed acquisition of Ten Network shareholding by Foxtel

On 22 October 2015, the ACCC announced that it will not oppose the proposed acquisition of partial shareholdings (15%) in Ten Network Holdings Ltd (Ten) by Foxtel Management Pty Ltd (Foxtel) while Ten proposes to acquire a 24.99% stake in Multi Channel Network (MCN) and an option to acquire 10% of Presto TV (a joint venture between Foxtel and Seven Network) (together, the Proposed Acquisitions).

The ACCC is yet to publish its Public Competition Assessment but the ACCC's decision raises several issues relevant to the media industry:

  1. Continued focus on sporting content

The ACCC's primary concern with the Proposed Acquisitions is whether it will cause Foxtel to favour Ten over other free-to-air (FTA) networks such that those FTA networks would no longer be able to compete effectively in the acquisition of sports and premium non-sport content (such as high-profile reality TV shows).

Ultimately, the ACCC decided not to oppose the Proposed Acquisitions as they are, on their own, unlikely to result in a substantial lessening of competition. The ACCC considered that other FTA networks, subscription television (STV) providers and subscription video-on-demand (SVOD) providers will continue to have sufficient alternatives to allow them to obtain attractive content and that Foxtel and Ten will continue to face competition from remaining FTA networks.

Rod Sims, ACCC Chairman, recently stated that access to sporting content is vital to the ability of FTA networks to compete strongly.

  1. A possible shift towards a broader market definition

The ACCC has acknowledged, for some time, that technological developments have prompted significant structural change in the media industry. Recent developments have seen huge growth in SVOD services through the entry of Netflix, Stan and Presto. Additionally, the ability for consumers to download content and movies through smart TVs and other platforms is resulting in traditional FTA networks offering a blend of linear and on-demand content.

Interestingly, the ACCC, in its analysis of the Proposed Acquisitions, defined separate national markets for each of FTA, STV and SVOD but also acknowledged that a broader, convergent market encompassing at least FTA and STV (and possibly also SVOD) may also be relevant. Of the three services, the ACCC noted greater substitutability between FTA and STV services for sports content whereas SVOD is unlikely to be a close substitute.

  1. Further regulatory reform signalled

In announcing its decision not to oppose the Proposed Acquisitions, the ACCC hinted that future regulatory reform would be required to promote competition and that existing regulations, such as the 75% reach rule, are no longer effective due to technological developments in the industry.

ACCC releases SOI on Halliburton's proposed acquisition of Baker Hughes

On 23 October 2015, the ACCC released a SOI (see here) on its preliminary views on competition issues arising from Halliburton Company's (Halliburton) proposed acquisition of Baker Hughes Incorporated (Baker Hughes). The global merger is valued at approximately US$34.6 billion and is conditional on the parties obtaining regulatory approvals.

Halliburton and Baker Hughes offer goods and services across a broad range of oilfield products, in many countries around the world. Oilfield services comprise products which are acquired to facilitate the exploration for and production of oil and gas. The merger parties are close competitors across a large number goods and services in Australia.

Based on total annual revenues, Schlumberger Limited (Schlumberger) is the largest global and Australian oilfield services provider. The merger parties are currently the second (Halliburton) and third (Baker Hughes) largest providers both globally and in Australia.

The ACCC's preliminary view is that there are strong risks of unilateral and coordinated effects arising from the proposed acquisition. The advantages the merged firm and Schlumberger would have suggest that post-acquisition they are not likely to face strong competitive constraints from rivals or entrants in a number of markets.

Submissions on the SOI close on 12 November 2015.

RECENT AUTHORISATION DEVELOPMENTS

ACCC proposes to deny authorisation to the Cotton Shippers Association for an industry standard

The ACCC has issued a draft determination denying authorisation to the Australian Cotton Shippers Association (the ACSA) for the coordination between its merchant members to change the way the industry classes cotton for contracts between growers and merchants.

The ACSA is an industry association whose members include the largest cotton merchants in Australia, representing the vast majority of Australian cotton exports. These merchants purchase cotton from Australian cotton growers and sell that cotton into the global market.

The ACSA and its members seek authorisation for a coordinated move whereby all purchases from cotton growers are to be priced using a grading system based on machine classing of the colour and leaf of cotton. Under the proposal, merchants could refuse to acquire cotton from growers that have not been graded by an approved machine service.

Currently classes of cotton are classified by a mix of visual and machine tests. Cotton growers are concerned that full machine testing could mean that they receive less for their cotton. Currently individual merchants are free to move to the machine classing system on a sale by sale basis.

The ACCC was not satisfied that the proposal would result in a public benefit that outweighed the anti-competitive detriment. The ACCC is concerned that the proposal could lead to a lowering of competition between merchants and increased potential for collusion between merchants on matters including price. A final decision is expected in December 2015.

ACCC DEVELOPMENTS

ACCC report on the private health insurance industry

On 20 October 2015, the ACCC released a report on the private health insurance industry (see here). The report made three key observations:

  • There are market failures in the industry, which reduce consumers' ability to compare policies and make informed choices about their future medical needs.
  • Existing regulatory settings can change consumers' incentives in purchasing health insurance. As insurers respond to market demands for affordable policies there are greater risks of unexpected out-of-pocket costs for consumers.
  • Current practices by some insurers are at risk of breaching the consumer laws.

Unfair contract term protections extended to small business contracts

Legislation has been passed to extend the unfair contract term protections to small business contracts. For more information, see the Corrs in Brief article here.

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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