Australian Society of Certified Practising Accountants

AUSTRALIAN SOCIETY OF CERTIFIED PRACTISING ACCOUNTANTS

ACT CONGRESS 1998

Canberra

19 November 1998

The ACCC and Competition Policy

Mr Sitesh Bhojani

Commissioner

Australian Competition & Consumer Commission

Good morning. It is a pleasure to be here today to hopefully give you an insight into the ACCC’s role in enforcing the Australian competition laws and its role in the implementation of the national competition policy.

The stated aim of the Trade Practices Act, and the focus of the Commission’s work, is to enhance the welfare of Australians through the promotion of competition and fair trading and consumer protection. It does this, not only through the enforcement of the competition and fair trading provisions of the Act, but also via its regulatory responsibilities in areas such as telecommunications and energy .

Having regard to this diverse range of functions and to the near universal coverage of the market for goods and services of the TPA, the question may be asked how does the ACCC focus its work on key issues?

The ACCC has sought to achieve a clear focus for its work as follows:

• Competition. All parts of the TPA have competition as their key focus and unifying theme. Thus the consumer protection provisions can be seen as a form of competition policy because if consumers are given deceptive or misleading information about goods and services then they will be unable to choose properly between competitors and the competitive process will be damaged. Moreover whilst the access regime could be seen by some to be a purely regulatory activity (in which for example the ACCC must arbitrate when there are disputes about prices, terms and conditions of access), a key policy factor underlying its decisions is the competitive impact of the prices, terms and conditions which it sets. Similar comments apply to other parts of the TPA. The emphasis on competition as the unifying theme is not intended to imply that wider public benefit, public interest and economic efficiency concepts are not to be given priority where the Act so requires.
• Enforcement. The ACCC’s role is to enforce the law. The ACCC is in general not a competition policy advocate. This is the role of other parts of government including the National Competition Council and the Productivity Commission. Occasionally the ACCC enters policy debates most often with the support and encouragement of the government of the day eg the ACCC’s promotion of the arguments for reforms in the compact disc market have been encouraged by the government and by the relevant Ministers in the previous governments.
• The ACCC is mainly concerned, so far as competition policy is concerned, with the non-traded goods and services market. Much of the work which it would otherwise need to do in the traded goods and services market is being accomplished by import competition now that tariffs and other forms of import protection have been reduced.
• Within the non-traded goods and services sector the ACCC’s principal focus is on the less competitive parts of that broad sector.
• The ACCC does not favour detailed regulatory processes and outcomes and seeks to minimise them. For example in recent years there has been a drastic cutback in the role of prices surveillance. A few years ago some seventy-five companies had to pre-notify prices under the provisions of the Prices Surveillance Act. Now the number is fewer than ten. Deregulation of petrol prices, the most important area of notification, has been accepted by the government.

Unfair prices

The ACCC seeks to break up cartels that cause high prices, high costs, inefficiency and unfairness in all parts of Australia. Examples include the price fixing actions against freight express and concrete companies, and more recently against Pacific Dunlop over foam used widely in Australian furniture; WD & HO Wills for cigarettes in South Australia; Inghams and Steggles in chicken markets in South Australia; McPhees (fined $4m for freight express services in Victoria although the matter is on appeal); North West Frozen Foods and others for fixing prices of frozen foods to restaurants, hotels and convenience food outlets throughout Tasmania, and others.

A case currently before the court concerns Safeways, owned by Woolworths, which is linked to the successful George Weston case. George Weston applied pressure to a small business person selling bread next to Safeways in an attempt to force it to increase its prices to match those of Safeways, harming both a small business competitor and consumers of bread.

The Commission has also recently been successful in a price fixing and resale price maintenance action against The Fitness Generation and one of its Marketing Managers. The Commission instituted proceedings after The Fitness Generation issued a letter to its retail distributors – with whom it also competes in the same market – offering supply of a particular brand of fitness equipment. The letter accompanied a retail price list for the equipment, with a notation to the effect that the company would closely monitor retail prices and would not look favourably upon discounting. Those retailers found discounting would most likely not enjoy a long term relationship with the company. The company stated in its letter that it would be selling the equipment at the price stated in the enclosed price list. By taking the action the ACCC aimed not only to make The Fitness Generation aware of its obligations, but also to ensure its wholesale customers were aware of their rights with respect to discounting and competing.

Looking ahead the Commission is actively investigating a number of significant anticompetitive agreements, including a matter involving the Real Estate Institute of Western Australia. On 16 June 1998 the Commission instituted proceedings under the Act and the Competition Code Western Australia against the Real Estate Institute of Western Australia Incorporated (REIWA), its Executive Director and various other parties in relation to an alleged price fixing agreement. The Commission also alleges that certain REIWA rules of practice are anti-competitive. The Commission alleges that in June and July 1997, REIWA distributed an agreement to five colleges of TAFE in Western Australia in relation to a training course known as Certificate Ill in Property Services.

The agreement contained a clause by which the colleges agreed not to provide the training course to students at a fee less than $780. It is alleged that two colleges, South West Regional College of TAFE and West Coast College of TAFE (then known as North Metropolitan College of TAFE), entered into the agreement with REIWA.

The Commission also alleges that certain of the REIWA rules and rules of practice for member real estate agents are anti-competitive in that they have the effect of:

• requiring that, where any member of a franchise group wishes to become a REIWA member, all franchisees of that group also be members;

• preventing members from approaching vendors who are dealing exclusively with another agent; and

• preventing members from offering certain incentives or inducements to consumers.

The Commission has also witnessed an increase in international cartel behaviour, i.e. firms located in different countries agreeing on prices or on who gets which customers. This rise follows the lowering of trade barriers around the world. The private sector often reacts with agreements designed to offset the pro-competitive effects of trade liberalisation. The US Dept of Justice is currently pursuing some 35 international price fixing cases at present.

Another area of emerging interest is in the health sector. The Commission is currently taking action in the Federal Court in Sydney for an alleged price fixing agreement between certain anaesthetists and an alleged associated boycott by some of them of hospitals which did not agree with their pricing demands.

We are also looking at restrictions on entry into medical specialist colleges.

The Federal Trade Commission, our US counterpart, spends 25 per cent of its time on health sector matters. Most of the US matters involve naked use of market power to get higher income rather than higher level questions of ethics, the fiduciary relationship between doctors and patients, or quality of service. If those issues arise in Australia, they can be authorised if there is sufficient benefit to the public, e.g. better quality service.

Price fixing agreements between competitors rarely have social benefits. However it is now possible to seek authorisation for price fixing agreements where the public would benefit. The ACCC has finalised an Australian Medical Association application for authorisation of collective bargaining arrangements between doctors in rural South Australia and the South Australian Health Commission.

The abuse of market power

The ACCC also tries to stop abuses of market power under section 46. From 1973 until 1996 there were no “section 46” cases by the Commission but we have launched several recently. One in Adelaide involves a major scrap metal company, Sims, which the Commission alleges sought to force a small scrap metal collector to make an agreement with it not to compete in acquiring scrap metal. The small competitor did not agree. We allege Sims then paid extremely high prices to acquire the scrap metal which otherwise would have gone to the small player in order to eliminate it from the market, in breach of section 46.

We have launched a case against Boral for predatory pricing well below costs aimed at driving a new entrant out of the concrete products market.

We also litigated against the Bureau of Meteorology, not, as one might suspect, for any misleading or deceptive conduct, but for monopolisation in trying to keep new competitors out of Australia. These days any government involved in any form of business can expect the law to be applied to it.

The ACCC tries, through merger law, to stop unjustified increases in the concentration of market power. Thus in the Coles/Myer/Foodland case it opposed Coles/Myer’s attempt to acquire 75 per cent of the Western Australian wholesale grocery market and thus (a) to increase its buying power in relation to suppliers; (b) to increase its competitive power versus the small retailers it would have both supplied and competed against in retailing; and (c) to reduce retail competition.

Merger law is especially important given the absence of a divestiture law in Australia that enables existing firms to be broken up. Mergers have a profound effect in shaping the competitive structure of the economy in years ahead. Essentially a balance must be struck between allowing through with as little difficulty as possible good mergers that increase efficiency and do not harm competition and opposing undesirable and unhealthy mergers.

Recent merger proposals considered by the Commission which you may find interesting are those involving Coopers & Lybrand and Price Waterhouse. The Commission formed the view, after consulting a large number of the firms’ Australian clients and competitors, that the merger was unlikely to substantially lessen competition in Australia. In addition, competition regulators around the world considered the competitive effects of the merger in their own countries. Whilst statistics collated via the exchange of market information with overseas regulators showed that the new firm would have a significant share of the national fees earned in auditing, accounting, taxation advice and management consulting, the ACCC still found that prices would be likely to remain competitive in those areas in the post-merger environment.

Similarly, the ACCC decided in August this year that there were no competition concerns associated with the proposed merger between the ASCPAs and the Institute of Chartered Accountants in Australia. In reaching this conclusion, the Commission considered that there is presently no restriction on the use of the term ‘accountant’ in the selling of accounting services, and indeed, members of the two bodies face increasing competition from a range of other service providers including lawyers, book keepers, management consultants and from the sale and use of accounting software packages. In addition, the Commission understands that if the merger is accepted by the membership of the two associations, the merged entity intends to adopt common procedures for accreditation and to establish uniform membership fee structures over time. Moreover, it appears that the unification of the two accounting bodies to form the Institute of Chartered Professional Accountants in Australia should enable the new body to better represent the interests of the Australian accounting profession both in Australian and internationally.

Recently, there has been a reduction in the barriers to trade in accounting services which should facilitate increased trade in accounting services on an international level. In this context, a more uniform representation and accreditation of professional accountants in terms of mutual international recognition and in terms of promoting Australia’s trade in services.

As a general principle, the ACCC encourages the amalgamation and rationalisation of professional services associations where those associations represent members with substantially the same sets of skills and qualifications. This merger, if it proceeds, would be a welcome development in terms of simplifying the representation and accreditation of a significant group of professional service providers in Australia.

A global merger wave is occurring. The US authorities are dealing with three times as many mergers as normal at present. Australia is not exempt. The Asian crisis has probably put somewhat more merger pressure on some Australian firms. Some attempts are being made internationally to get better coordination between countries dealing with mergers occurring in many countries simultaneously.

Merger law is not getting in the way of firms that need to achieve the scale necessary to take part in world markets. The Commission has opposed no mergers where there is significant import competition and this is the area where the claim that large size is necessary to take part in world markets is most relevant. However, even apart from that, the Commission opposes relatively few mergers. Our total rateof opposition to mergers is around five per cent a year, and some of them are eventually overcome by undertakings given to the Commission. In the small Australian economy, unlike the USA, our law permits anticompetitive mergers where, as part of the authorisation process, they can be shown to bring a sufficient benefit to the public, e.g. lower prices. Over half of authorisation applications are successful.

The real agenda for future merger policy is in the deregulating areas where there will be a very high rate of merger activity. Much such activity is justified. It is unlikely that the structure of an industry will be right, fixed and immutable at the beginning of a process of deregulation. However, from time to time, mergers can undo the procompetitive effects of deregulation. For example, if Victoria’s electricity industry which was broken up into many parts was allowed to remerge tomorrow, if for example the five generator companies could remerge tomorrow, or take over the distributors, this could undo many of the procompetitive effects of Victorian deregulation.

The violation of consumer rights

The Commission continues to be active in consumer protection. It obtained refunds of over $50m to consumers of AMP’s 80/20 Life Insurance policies; and of $45m from Telstra for its misleading wiring repair plain. We are currently concerned about advertising of mobile phones. We are involved in numerous cases involving scams against small business, eg telemarketing fraud.

Austcomm Tele Services

The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court Perth, against a Western Australian telephone services reseller, two senior executives, and four marketing agents.

The ACCC alleges the unauthorised transfer of customers from one telephone company to another, or ‘slamming’ as it is known in the industry.

The proceedings are against Austcomm Tele Services Pty Ltd, a company director, a company manager and four of its marketing agents.

The ACCC alleges that in the course of reselling telephone services to householders Austcomm claimed:

• it was offering an auditing or bill checking service;
• its services provided savings in circumstances where savings were not available; and
• it was part of, a branch of, subsidiary or an authorised agent of Telstra

when this was not the case.

This action follows a warning on 13 August 1998 by the ACCC that it would act quickly against telephone companies who transfer customers from other companies without proper authorisation.

The Commission has also obtained injunctions against CDRC’s Financial Network. This matter involves the advertising of a personal loans facility aimed at pensioners, bankrupts and people with bad credit. The Commission alleges that CDRC and its directors represented to the public, in various newspaper advertisements around the country, that personal loans were available to callers from the operator of the 1902 number. The Commission alleges that customers were misled into making expensive 1902 phone calls for a personal loan, when all that was being offered is advice on how to secure a loan.