ACCC & AER annual report 2015-16

Introduction

As the national agency responsible for consumer protection, competition law, and infrastructure regulation our work this year has taken us everywhere from the boardrooms of multi-national merger applicants to remote Indigenous communities targeted by unscrupulous sales people. We have visited cattle country, toured gas hub infrastructure and assisted our counterparts in the Asia-Pacific region; all in the name of making markets work.

We have been a champion for competition and consumers in more ways than one. We continued to voice our concerns about actions taken by governments to sell significant assets without appropriate market structures or regulatory arrangements in place. We think governments should use privatisation as an opportunity to put in place pro-competitive market structures. We have also used our legal, economic, investigative and regulatory expertise to complete market studies in several key areas of the economy. In fact, like most other agencies around the world, market studies are now a permanent feature of what we do. We will use them to focus on important markets of concern and identify any relevant issues that need to be addressed.

We have achieved some significant enforcement outcomes this year involving, among others, Visa Worldwide, Colgate-Palmolive, Woolworths and Optus, to name a few. From our perspective, strong and visible enforcement defines the boundaries within which the profit motive can work. To achieve this objective, we must constantly explain what we are doing and why. On that note, I am pleased to introduce this report and highlight some of our activities.

A steady stream of consumer outcomes

Our consumer laws underwrite confident consumers, enhance transparency and inform choice. The Australian Consumer Law (ACL) seeks to ensure businesses compete on merit and not falsehoods, and to protect all consumers and small businesses from unfairness that has no place in a properly functioning market.

In 2015–16, the ACCC was involved in 48 consumer protection court cases (19 new proceedings) resulting in penalties totalling more than $15 million. We also accepted 12 court enforceable undertakings and received payment for 43 infringement notices from 20 traders with penalties totalling over $450 000. Our activities covered everything from bacon to boots and beds.

This is a great effort especially when you consider we had to shuffle our resources to deal with some urgent issues, including private training colleges and dairy issues.

Working with and for small business

We continue to seek to ensure that small businesses have the opportunity to compete on their merits, and to educate them about their rights and responsibilities under the Competition and Consumer Act 2010 (Cth) (the Act). This year we undertook several court actions against firms preying on small firms, revised and revamped our consultation by creating a merged Small Business and Franchising Consultative Committee, grew our Small Business Information Network and our Franchising Information Network, and began preparing for the introduction of the new business-to-business unfair contract term provisions that will provide more protections from November 2016.

Underscoring the importance of what we do in product safety

I believe our case against Woolworths Limited for misleading consumers about product safety hazards was one of our most significant actions. The Federal Court ordered Woolworths to pay more than $3 million in penalties for breaches of the ACL relating to safety issues with house brand products sold in Woolworths supermarkets, Big W and Masters stores. In some cases, Woolworths was aware of serious injuries resulting from defective products, but did not remove the item from sale or recall the product. Woolworths subsequently removed the products from sale and recalled them, but not always before further injuries. Because of this case, all companies should now pay closer attention to quality assurance and do more to detect and remove unsafe products from their shelves.

Questioning claims made by big business

Consumers understand businesses sometimes get things wrong, but deliberate, systematic and cynical conduct can damage consumer confidence. That is why we focused on truth in advertising and claims made by larger firms. Our actions cover some extremely well known products such as Nurofen, Arnott’s Shapes, Uncle Toby’s Oats, and Rainbow Paddle Pops. Each action serves a purpose, but the underlying message is consumers must have accurate information when making their purchasing decisions.

Indigenous consumer protection becomes an enduring priority

We have had a focus on protecting Indigenous consumers for many years. In 2016, we have gone a step further and elevated Indigenous consumer protection to an enduring compliance and enforcement priority. This is a significant change to our policy and one that recognises Indigenous consumers, particularly those living in remote areas, continue to face challenges in asserting their consumer rights. The elevation means we will prioritise our work in these areas while these challenges remain.

Private health insurance and consumer protection

This year our private health insurance market study for the Senate focused on information provided to consumers. We examined the transparency, accuracy and consistency of information about policies and the impact on consumer decision-making. We are reviewing consumer protection issues arising from this report.

Separately, we have instituted proceedings in the Federal Court against Medibank Private Limited alleging it contravened the ACL by engaging in misleading conduct, making false or misleading representations and engaging in unconscionable conduct. The allegations centre on Medibank’s failure to notify members about its decision to limit benefits for in-hospital pathology and radiology services.

The first year of the Food and Grocery Code of Conduct

We are committed to doing what we can to ensure the new Food and Grocery Code of Conduct succeeds. The code did not get off to the best start; and we publicly expressed our concerns about the way retailers presented new supply agreements. Our immediate concerns were then resolved and we are confident the code can help redress the continuing imbalance in bargaining power often existing between suppliers and larger grocery retailers. We will continue to monitor complaints under the code, conduct compliance checks and investigate potential breaches.

Major developments in key competition cases

The operation of our market economy depends on competition to drive innovation and benefit consumers. It is, therefore, important for the ACCC to take action when a company damages the competitive process. Indeed, in the past year, we have seen some major developments in several long-running cases.

In September, the Federal Court handed Visa Worldwide Pte Ltd an $18 million penalty for engaging in anti-competitive conduct which prevented competing currency conversion providers from expanding.

In another important case, the Federal Court ordered Cement Australia Pty Ltd and related companies to pay penalties totalling $17.1 million for anti-competitive flyash agreements. We have since appealed the penalty arguing it is manifestly inadequate, and not of appropriate deterrent value. Our broad view is penalties must be commercially relevant. In other words, penalties must be high enough for businesses not to see them as merely an acceptable risk of doing business.

Cartel cases continue to unfold

The fact we have around a dozen in-depth investigations suggests there is too much cartel conduct occurring in Australia. We need to send a strong message regarding cartel conduct and the Commonwealth Department of Public Prosecution laying Australia’s first criminal cartel charges in July 2016 will certainly help with that. In the meantime, business executives should take notice of our recent civil actions.

The Federal Court ordered Colgate-Palmolive Pty Ltd to pay $18 million after it admitted to entering understandings to limit the supply and control the price of laundry detergents. As a part of the same proceedings, the Federal Court ordered Woolworths Limited to pay $9 million in penalties following admissions. The Woolworths penalty is the largest ordered against an accessory to competition law breaches. The case continues against PZ Cussons Australia Pty Ltd.

In another significant development, the Full Court of the Federal Court upheld the ACCC’s appeal in the air cargo case. The Full Court found PT Garuda Indonesia’s and Air New Zealand’s conduct breached Australia’s price fixing laws when it agreed to surcharges for carrying air cargo from overseas ports to destinations within Australia.

In the year ahead, the Federal Court will hand down a penalty against Yazaki Corporation after it engaged in collusive conduct in supplying wire harnesses to Toyota Australia. We also keenly await the High Court ruling on the Flight Centre case.

Using undertakings to get petrol price information for motorists

Late in 2015, the ACCC accepted undertakings from Informed Sources and four petrol retailers in resolving court proceedings instituted in 2014. We believe the undertakings will achieve a key objective of the ACCC; that is, open and transparent markets. Enabling consumers to access data and information, previously only available to Informed Sources subscribers, will enable informed decisions and increased competition.

A spate of important and complex merger reviews

The ACCC considered 319 mergers and conducted 31 public reviews during the year. Significantly, and in accordance with our stated objectives, we cleared 90 per cent of mergers without the need for a public review. We believe we are getting the right balance in ensuring our limited time and energies focus on the more complex or contentious end of the merger spectrum while less contentious mergers are cleared expeditiously. With our mergers work, we never know what is coming around the corner, but looking back, we assessed some important and complex mergers and acquisitions; Iron Mountain’s acquisition of Recall Holdings; Halliburton’s proposed acquisition of Baker Hughes; the Qube/Brookfield acquisition of Asciano; and Metcash’s proposed acquisition of Home Timber & Hardware Group.

An authorisation decision for the ages

The early pioneers of competition law in Australia could have never imagined an authorisation application involving a smartphone taxi booking app. Authorisation enables businesses to engage in anti-competitive arrangements without the risk of legal action. In this example, the ACCC granted conditional authorisation to the ihail app, a joint venture between the major taxi networks and other industry participants, including Cabcharge. All up, we issued more than 30 final authorisation decisions across a wide range of industries.

A formal inquiry into the complex wholesale gas industry

We completed our formal inquiry into the competitiveness of wholesale gas prices in eastern and southern Australia. As part of the 12-month inquiry, we held more than 30 hearings and considered over 73 000 documents. We found the development of liquefied natural gas (LNG) facilities in Queensland created unprecedented change in the east coast gas market. Our report explains how a triple whammy of events has created an increasingly complex environment for many gas market participants. We also reported that meeting future domestic and LNG demand will require extensive development of undeveloped gas reserves and resources. We also said the current test for pipeline regulation is not fit for purpose. The ACCC has made a number of recommendations that the COAG Energy Council and state and territory governments can consider to alleviate gas market issues.

Running a ruler over the new car industry

The ACCC has started a market study into the new car retailing industry and we expect to issue a draft report in the first quarter of 2017. With more than one million new cars sold in Australia each year, the study will focus on compliance with consumer guarantees obligations, after sales care, fuel efficiency claims and restrictions on accessing vehicle data.

Ramping up our work in the farm sector

Market studies will also be a feature of our work in agriculture. In fact, one of the first actions of our new Agricultural Unit was to conduct a study into the beef cattle industry. We are interested in a range of issues such as competition between buyers of cattle, the strength of competition among bidders at saleyards and the transparency of cattle pricing information. We hope to complete the report on the study in November 2016. With engagement, our new unit has also held the first of a series of workshops for fruit and vegetable growers in regional areas. We also established an Agricultural Consultative Committee to act as a sounding board on competition and fair trading concerns related to the agriculture sector.

Making our mark on the global stage

With an increasingly global market place, our international activities grow in significance every year. The Global Competition Review ranks us as one of the top 10 agencies in the world. One of our main activities is delivering a major capacity building initiative, the Competition Law Implementation Program, to support ASEAN Member States to introduce and implement national competition laws and policies. Strengthening competition law enforcement is a vital part of Australia’s international engagement, and our regional relationships have never been closer

An industry in change

The telecommunications industry is experiencing prolonged change due to technological developments, new consumer use patterns and, principally, structural change from the rollout of the NBN. The ACCC has various roles in this transition and this year we issued our first quarterly report detailing the size and structure of emerging NBN wholesale access markets.

The need for monitoring broadband speed

The ACCC wants to see consumers provided with better information about broadband speeds; to improve competition and consumer outcomes in the retail broadband market. We completed a three-month broadband performance monitoring and reporting pilot program this year and next year we will invite comment from industry and consumers views on broadband speed and performance information.

Making the water charge rules better

Last year, we started preparing advice for the Minister on making, amending or revoking the water charge rules and water market rules. In preparing our advice, we held eight forums across the Murray-Darling Basin and met with many industry stakeholders. Our focus is on improving transparency around charging arrangements, promoting efficient and sustainable use of water infrastructure, and reducing the regulatory burden on infrastructure operators. In line with the review’s terms of reference, our draft advice proposed changes to reduce the red tape for infrastructure operators while increasing safeguards for irrigators and other water users. Our final advice will go to the Minister in the second half of 2016.

Putting regional petrol prices under the microscope

The ACCC undertook a number of ‘micro’ petrol market studies in targeted regional locations. These studies aim to explain prices paid at the bowser to understand why prices are higher in some regional locations. Our first report covered Darwin where we found that petrol prices were significantly higher than in a competitive market. Interestingly, Darwin’s average petrol prices came down during the year because of the increased scrutiny. We also completed a report on Launceston petrol prices and will continue to examine prices in Armidale and Cairns.

Considering exemptions from the Wheat Code

The ACCC is keen to reduce regulation where it is not necessary, such as where competition has developed. The Port Terminal Access Code of Conduct regulates the conduct of port terminal service providers to ensure exporters of bulk wheat have fair and transparent access to port terminal services. Where appropriate, the ACCC may reduce regulation at a specific port terminal by exempting port terminal service providers from certain parts of the code. This year, we assessed and granted a series of exemption applications.

Australian Energy Regulator

The Australian Energy Regulator’s job is to ensure consumers pay no more than necessary for a reliable supply of energy. The AER has completed some fascinating work dealing with consumer hardships policies, increased consumer consultation and the all-important revenue decisions. In the past year, the AER broke some new ground; the AER’s work extended to the regulation of networks in the Northern Territory for the first time and the National Energy Customer Framework applied in Queensland for the first time.

Changes in the Commission ranks

We welcomed Mick Keogh as a new Commissioner in February. Agriculture is a priority for the ACCC and Mick’s experience in the farm sector will be invaluable to us. In April, we farewelled Commissioner Dr Jill Walker after she was appointed to the New Zealand Commerce Commission (NZCC). Jill has made an enormous contribution to the ACCC in so many areas; we all owe her a great deal. The NZCC will benefit greatly from her expertise.

An exciting time to be a competition and consumer law expert

In November, the Australian Government accepted the majority of the Harper review panel’s recommendations in making sure our competition policy and laws are fit for purpose. We are working constructively with the government as it implements these recommendations.

The first review of the ACL is now well underway. The ACL review will test whether consumer protections suit the modern marketplace and whether the tools and sanctions are delivering compliance. For example, one of the big questions for the review is whether the maximum available penalty of $1.1 million is enough to deter larger firms. The ACCC considers consumer law penalties ought to be more in line with competition law penalties. The review will also consider the ‘single law multiple regulator’ model which underpins the ACL.

Looking forward—a law rarely standing still

There are several changes to the law covering important areas of our economy. We have new laws banning excessive payment surcharges. The ban essentially stops businesses from charging customers more than what it costs the business to process the payment. The ban will have a staged introduction applying to large businesses from 1 September 2016 and to all other businesses from 1 September 2017. We will focus on education and awareness in the early stages but there will also be an enforcement focus, particularly for those large businesses clearly on notice of these changes.

Many companies use standard form contracts when doing business with multiple customers or suppliers. From 12 November 2016, a new law will protect small businesses from unfair terms in standard form contracts. If the court finds a term unfair, that particular term will be void and treated as if it never existed. We think the new protections are an important development in supporting a vibrant small business sector.

Clear and accurate food labelling is important from both a consumer and competition perspective. On 1 July 2016, a new country of origin food labelling system will start under the ACL. Businesses will have two years to sell their current stock and change their labels to comply with the new law before it becomes mandatory on 1 July 2018. The labelling standard regulates the type and amount of information businesses provide to consumers about the food they buy.

On behalf of everyone at the ACCC, who have worked hard all year to deliver the excellent outcomes outlined in these pages, it is a pleasure to introduce our Annual Report. There is much going on and much, much more to come.