Speaking today (13 September 2012) to the Australia Israel Chamber of Commerce’s Business Leaders Lunch in Perth,  Mr Rod Sims, Chairman of  Australia’s business and consumer watchdog government agency the Australian Competition and Consumer Commission (ACCC), outlined the current ACCC priorities.

COMPETITION PRIORITIES

Mr Sims said that at any one time the ACCC had between 40 and 50 cases in the Federal Court. Currently, around one quarter related to competition issues.

“We currently also have 35 separate investigations underway into misuse of market power, cartels, or cases involving a substantial lessening of competition,” Mr Sims said.

“While these cases are complex, and take considerable time and resources to investigate and then prosecute, the deterrent effect of our work is substantial,” he said.

The ACCC was looking to take on more competition cases. He outlined a strategy to take a proactive approach in 3 key areas:

• the online economy
• cartels
• misuse of market power and other anti-competitive conduct, particularly in concentrated markets

 

Digital and online markets

The online economy was identified as a key priority for the ACCC when it undertook a strategic review in late 2011. It poses two of the biggest regulatory challenges in a generation:

1. Ensuring consumers enjoy the same protections in the digital and online economy as they do elsewhere.
2. Ensuring fair competition in the digital and online economy between new and innovative competitors and incumbents.

“We are examining whether certain current bricks and mortar leading firms are seeking to prevent online competition in ways that breach the Competition and Consumer Act (CCA).

“I recently heard one such retailer claiming that bricks and mortar incumbents will dominate online shopping in future and see off completely new solely online competitors. It would be a missed opportunity for competition if this became the inevitable outcome.

“Our cases against Ticketek and Flight Centre are two prime examples of our enforcement work to ensure competition online.

“A related case is our successful court action against Apple for misleading consumers about Apple 4G iPad’s capacity to connect to the 4G network in Australia which also has competition implications. Other firms, Samsung for example, sell tablets which compete with the iPad and which can connect to Australia’s 4G network. Those firms are entitled to compete in a market that is fair in terms of the claims that are made about what the devices can do,” Mr Sims said.

He expressed the view that online technology is revolutionising competitive dynamics. “We will do all we can to prevent incumbents misusing their market power against the many new competitors that will emerge”.

Cartels

“Combating the damage cartels wreak on other businesses, consumers and the economy has been a major ACCC priority for some time. For over a year now we have been taking a more proactive approach to cartel conduct, following results from the 2010 Melbourne University Law School research that showed:

• 58 percent of businesses don’t know that fixing prices, rigging bids, sharing markets and restricting supply is a criminal offence that can result in a 10 year jail sentence
• Of the 42 percent of businesses that understood the potential criminal nature of cartel conduct, almost one in 10 said they’d still be likely to join a cartel if the opportunity arose

“Our proactive enforcement and education program aims to bed down the new laws and increase awareness of them.

• We have 10 current cartel enforcement matters before the Federal Court.
• We have a number of active cartel investigations currently underway.
• We have conducted a direct mail and email campaign to targeted and general industry sectors informing them of the criminal penalties and how immunity can free them from prosecution. This includes letters to 2,500 executives in the heavy construction and construction supply industries.
• We have made and distributed a short film called The Marker that shows how involvement in cartels can ruin your business and your life – I have personally sent copies to the CEOs of the 300 top ASX listed companies urging them to show it to relevant employees at all levels of the organisation
• We have gained significant media publicity around our most recent court case and the launch of The Marker”.

In a series of cases regarding air cargo, the courts had imposed penalties in excess of $50 million, and there are a number of cases continuing.

Since the introduction of the immunity policy for cartel conduct, the majority of cartels detected by the ACCC have been detected via applications for immunity under that policy.

“We have had nearly 100 approaches under our immunity policy since it was put in place in 2003,” Mr Sims added.

 

Misuse of market power and concentrated markets

Australia has many concentrated markets. This is partly a function of our geography – the sheer size of the country and the distance from other markets.

Indeed, most market sectors are dominated by two to three main players and in a few sectors there is only one dominant player. These sectors in particular are ones the ACCC is watching carefully to ensure that there are not mergers or arrangements that substantially lessen competition, or where the obvious market power is not misused to prevent or damage competition.

Although the ACCC is targeting a competition focus in these areas, with many issues under examination, he said at this stage they remain confidential.

However, he announced active examinations of three areas in response to the significant public interest in them:

• issues relating to the treatment of suppliers by the major supermarket chains which include competition issues as well as allegations of unconscionable conduct, business-to-business, which we are keen to pursue generally.
• investigating the sharing of information about prices in the fuel retailing sector, and
• examining the longer term competition implications of the large shopper docket discounts provided between the fuel and supermarket sectors in particular.

Another competition matter on the ACCC desk at the moment is the Qantas / Emirates deal.  Last Friday, Qantas and Emirates applied for authorisation from the ACCC to integrate and co-ordinate their international networks.  This will involve Qantas operating its European services via Dubai rather than via Singapore so that it can integrate into the Emirates network.  But the arrangement will also have implications for trans-Tasman routes and will involve the parties code sharing globally including in Asia.   They are seeking interim authorisation from the ACCC to plan and negotiate the details of the arrangement with a view to commencing, if approved, in April 2013.

The authorisation process is a very public process in which the ACCC seeks submissions on the likely public benefits and likely anticompetitive detriments resulting from the arrangements.  Submissions are due by 1 October on the application (and on 21 September on the interim).  All public submissions will be available from our website. At this stage the ACCC plans to issue a draft decision in December before making a final decision in the first quarter of 2013.  There is a six month statutory time-frame for the assessment of authorisation applications, and large transactions like this one typically take the full six months.

The ACCC can grant authorisation if the likely benefits to the public outweigh the likely anticompetitive detriments and whether the arrangement could reduce competition and so raise prices on particular routes.

2. Mergers and acquisitions

The ACCC considers mergers and acquisitions are important for the efficient operation of the economy by allowing companies to become more efficient. That said, it is crucial that the ACCC prevents mergers which substantially lessen competition.

Some of the mergers and acquisitions we review clearly attract a lot of publicity. Understandably, the parties involved in a transaction have an interest in having their merger dealt with as quickly as possible and this can lead to criticism of the length of time the ACCC takes to reach a decision on a proposed merger

The length of time our reviews take, and the potential impact on the parties’ commercial time-frames, is something the ACCCis acutely aware of and is taking a number of steps to address.

The publication of a Statement of Issues is part of the ACCC’s processes that ensure transparency of our consideration of merger proposals. We will take account of the reactions from the market and the merger parties to the concerns we have outlined. At this stage we aim to make a final decision on this transaction in mid-October.

Close scrutiny from the ACCC will be particularly the case in concentrated markets. As I noted above, we want to ensure that mergers will not result in structural changes leading to a substantial lessening of competition. While there are a range of factors to take into account in assessing mergers under section 50, market concentration is a key factor.

When a merger is a “3-2” – so, when a merger reduces the number of key players in a market from three to two – the parties should not be surprised that the ACCC would want to carry out a full review. With only two principal players remaining in a market, each will learn to anticipate the actions and reactions of the other.  In these circumstances, the ability of the two remaining firms to raise prices or reduce quality for consumers generally increases.

That said, even mergers in less concentrated markets can, depending on the characteristics of the market, raise substantial competition concerns and parties should not expect that they will be waved through.

The ACCC’s review in merger cases is focussed on the likely effect of the transaction on competition ‘based on commercially relevant facts, assessments and evidence and not speculative possibilities’. Importantly, the ACCC’s focus is on getting the decision right, taking into account commercially relevant facts and making its own assessment. The ACCC review is not focussed on collecting all the evidence for a court case.

In making these assessments, it is critical that the ACCC understands the markets affected by the transaction and has access to the facts.  In an informal merger regime, which is what we have here in Australia with no upfront information requirements, information requests – both voluntary and compulsory – are an important part of our process and allow the ACCC to test the merger parties’ and third parties’ submissions. There will always be scope to refine the nature and extent of information requests, and we will continually seek to do this, but the ACCC does not shy away from their use where appropriate.

The ACCC has since 2010 been carrying out what we refer to as ‘pre-assessments’, which involves a review of the merger on the papers. During 2011/12, 250 of the 340 mergers considered by the ACCC were cleared without public review on the basis that the SLC risk was considered low; as a result, 87 percent of matters (pre-assessments and reviews) were completed in 8 weeks or less.

While the ACCC is looking to improve its processes, we also believe merger parties and their advisers should be doing likewise. Delays are being caused by some merger parties failing to comply fully and in a timely way to voluntary and compulsory information requests.

3. The ACCC’s approach under the Australian Consumer Law

Since 2010 the ACCC has new powers under the Australian Consumer Law, including the ability to issue infringement notices and seek pecuniary penalties from the Federal Court.

“We have welcomed the new laws with enthusiasm and are using them to protect consumers. We are particularly pleased with the penalties we have achieved as these not only show consumers that their rights are being protected, but they also have a clear, profound and lasting impact on corporate behaviour.

“We now have achieved almost $18 million in pecuniary penalties, and six cases in which penalties of more than $1million have been ordered by the Court–a higher benchmark than we have seen before for maximum penalties available,” Mr Sims said.

“Our outcomes for consumers do not stop at the Court room door. In fact, much more is achieved through out of court action,” Mr Sims noted.

He said the ACCC was quick to start using its new infringement notice powers with many fines being paid over the last two years. This power is there to deliver expeditious and efficient resolution of less serious matters. In the 2011-2012 financial year 34 infringement notices have been paid amounting to a total of over half a million dollars.  These powers have proved to be an alternative to legal proceedings when dealing with potential contraventions of the Act.

The ACCC also continued to accept a range of court enforceable undertakings which lock traders in to fixing the problem at hand.

The ACCC is  making strategic and deliberate use of its powers under the Competition and Consumer Act and Australian Consumer Law to draw clear boundaries in many markets, enabling fairer competition and long term protections for consumers.

“We are actively working across diverse sectors to detect misuse of market power, cartel conduct, anti-competitive mergers, and abuse of consumer rights,”  Mr Sims concluded.