Priorities 2015 speech

Check against delivery

Introduction

It is good to be back at CEDA for what has become an annual event to announce the Australian Competition and Consumer Commission’s compliance and enforcement priorities for the coming year.

The ACCC is, of course, the national agency responsible for competition law, consumer protection and economic regulation. Our role is to help ensure our market economy works as it should, for the benefit of all Australians.

We at the ACCC are particularly proud of what we achieved in 2014. Our, and certainly my, major focus was to get our finances in order; with a 12.5 per cent reduction in staff, and approximately $20M per annum additional funding from the Government, we are able to operate within our means, now and into the future.

To do the many things required to achieve this, plus streamline a number of our practices, involved and affected everyone at the ACCC.

Our key achievement was to do all of this without operationally missing a beat. To many of you observing us from the outside it would have appeared as business as usual.

Indeed, in 2014 we investigated many matters and instituted eight new competition cases and 20 consumer protection matters in the Federal Court, as well as referring two matters to the Commonwealth Director of Public Prosecutions (CDPP) relating to alleged non-compliance with our statutory notices requiring information and documentation in respect of which the CDPP is prosecuting those who allegedly failed to comply.

We dealt with the carbon tax repeal, many very complex product safety recalls and covered unchartered territory in the area of merger authorisations.

We continued to deliver a variety of quality regulatory work in communications, transport, water and wheat ports.

And, of course, we contributed substantially to the most significant review of competition policy in the past 20 years.

Today, I intend to focus on the year ahead. CEDA provides the ideal forum to:

• First, discuss our approach to enforcement, as well as plans to conduct more targeted research into industry sectors.

• Second, and most important, to announce our compliance and enforcement priorities for 2015, and

• Third, to preview briefly some of the other main activities for the year ahead.

Our approach

The ACCC receives around 200,000 enquiries and complaints a year. We usually investigate over 500 matters, and we take about 30-40 cases to court each year.

We are very aware of the effect we can have. Just making contact with a company can change behaviour. At the other end of the spectrum, when cases are taken to court, the effect is often considerable. Not just the case law or precedent value, but the strong deterrence message that results from the imposition of penalties and other orders if the ACCC establishes a breach of the >Competition and Consumer Act 2010 (the Act).

Indeed, we constantly hear of significantly changed behaviour across an entire industry when a case is taken against one company in that industry.

Given the effect we can have we must target our enforcement actions carefully. And, of course, with very limited resources, we have to make sure they are put to best use.

To help us do this, since 2012 we have published our Compliance and Enforcement Policy. The policy lists a range of factors that we consider when deciding whether or not to take action. It also lists about a dozen or so priority areas, which we review each year.

The policy also explains the strategies we use to achieve compliance with the Act. Our approach involves a mix of enforcement, from warnings to court cases, and education and partnerships.

Visible enforcement

In many ways, our enforcement record is our greatest asset. As I have said, what we achieve in the courts echoes in boardrooms and gives weight to our phone calls, letters, and all the other work we do.

Visible enforcement also ensures everyone understands the boundaries within which the profit motive can work. As well as knowing where the boundaries are, it is equally important that businesses know the consequences for crossing the line.

It is here that we may have a problem.

Last year when the court awarded penalties of $11m against Flight Centre for attempted price fixing, there was immediate financial media commentary that the penalty was “immaterial” given the size of Flight Centre[1].

In her December 2014 judgment against Coles for unconscionable conduct Justice Michelle Gordon noted:

It is a matter for the Parliament to review whether the maximum available penalty of $1.1 million for each contravention of Pt 2-2 of the ACL by a body corporate is sufficient when a corporation with annual revenue in excess of $22 billion acts unconscionably. The current maximum penalties are arguably inadequate for a corporation the size of Coles.

For our part this year, we will be continuing to advocate for the courts to impose penalties of appropriate deterrent value in each case. Penalties should not be seen as simply a cost of doing business. They need to be at a level which achieves both specific and general deterrence.

Some companies think they have a lot to gain from breaching our competition and consumer law; they should have much to lose as well.

Market analysis

This year our policy makes it clear that market analysis continues to play a role in supporting our compliance and enforcement approach. To be effective across all our functions we often need to understand industry practices and dynamics.

We have previously done such work, for example, our study of door to door selling practices in 2013 and the comparator website industry in 2014.

We have recently been directed by Minister Billson to monitor and analyse fuel markets in a more regular and in-depth way. As well as quarterly reports looking at petrol price movements, we will conduct in-depth market studies. These studies will look at ‘micro’ issues, including analysing the price drivers of petrol in some regional markets.

The declared purpose of such studies by the Government is for us to shine a light on specific fuel markets where prices are relatively high. Such exposure can, for example, influence behaviour as consumers can see where the money is being made and seek appropriate change.

Petrol aside, this year we will begin a new program of reviews of selected industry sectors. The sectors we are currently reviewing include debt collection and private health insurance.

Last year we commenced a review of the debt collection industry to gain a better understanding of the industry business models and the influence these may have on debt collection practices, in particular those practices that may affect vulnerable consumers.

We also commenced a review of the private health insurance industry which will inform the 2013/14 Report we are required to produce each year to the Senate. This review is focused on assessing the adequacy and transparency of information about private health insurance and the impact it may have on consumers and competition more broadly.

Our choice of other sectors for review will be informed by the ACCC’s strategic priorities that I am announcing today. They may well include emerging consumer issues in the online marketplace, including for example those associated with systemic market failures; the health sector; or on matters impacting vulnerable consumers such as older people and people who are newly arrived in Australia.

These reviews will assist us to identify risks to consumers and the competitive process that may require intervention, and possibly to identify and encourage good industry practice.

Setting priorities

To be an effective regulator we have to be clear about our priorities. The main benefit is to focus our own efforts and resources; but an additional benefit is that businesses are more likely to take notice and have an opportunity to review their own behaviour.

As part of our strategic review process, we sit down with industry, consumer groups and many others to take stock of our priorities and look to new areas of focus. As well as our own complaint data, we look at international trends and draw on expertise from local ombudsmen and our state fair trading counterparts. As a result of this process, today I am pleased to announce our priority areas of focus for 2015.

Our 2015 compliance and enforcement priorities

This year, we again have a mix of established and new compliance and enforcement priorities.

Cartel conduct, anti-competitive agreements and practices, and misuse of market power remain three of our four enduring priorities alongside product safety. The detriment caused to both consumers and competition means these forms of conduct will always be in our sights.

We are now directing half of our enforcement resources to competition matters.

Cartels

What should really focus people’s minds is that we have around a dozen in depth cartel investigations under way. We have also established a new dedicated group exclusively responsible for investigating serious cartel conduct. This group is focused on criminal cartel investigations and is working very closely with the CDPP.

As well as our general focus on detecting and deterring cartels, this year we will focus on cartel activity in government procurement. Cartels have long found public sector purchasing an attractive target due to the large budgets and unique processes.

We will be doing more to raise awareness about cartels with procurement agencies, anti-corruption bodies, and police. We also plan to help government procurement officers to identify the signs of cartel conduct. We believe this approach will reduce the vulnerability of procurement processes and generate information which can be further investigated.

Ultimately as taxpayers, we all pay the price if the public tender process is undermined.

Anti-competitive agreements and practices

In 2015, the ACCC will continue to clampdown on anti-competitive conduct and practices. We have around 20 in depth active investigations underway.

In addition, you only have to look at our case list to see that the Federal Court will generate a lot of interest in the year ahead. Some of the key matters include:

• the ANZ and Flight Centre appeal decisions are expected to be handed down by the Full Court of the Federal Court.
• progressing the petrol information sharing case involving Informed Sources and several petrol retailers.
• the long-running Cement Australia case, where penalties are to be imposed following an earlier liability decision, and
• the hearing of the alleged secondary boycott case against the CFMEU.

Misuse of market power

Our pursuit of misuse of market power is never a sprint, more of a marathon. Again, most attention will be on the courts with our case against Visa continuing to unfold and judgment to be handed down next week in the Pfizer case.

We will seek to add to this case list in the year ahead as we have about 10 in depth investigations involving misuse of market power allegations underway.

Product safety

Product safety is another long-term priority for us. Last year, we grappled with some very difficult product safety issues, the most significant being the recall of faulty Infinity electrical cables which potentially affects some 40,000 homes and buildings across Australia.

Another important matter is the proceedings in the Federal Court where we allege that Woolworths engaged in misleading and deceptive conduct and made false or misleading representations about product safety in relation to a range of home brand goods.

Sourcing finished goods from countries with lower production costs may provide cost benefits, but there can also be potentially larger hidden costs. Where the quality of products is variable or deteriorates, the products can become unsafe for consumers and expose suppliers to the costs of recalls and possible legal action.

Suppliers need to manage the quality assurance of the goods they procure. Consumers are entitled to expect that every manufacturer, importer, distributer and retailer in Australia adheres to appropriate levels of product stewardship. This will be a priority issue for us again this year.

Medical and health

We believe there are both competition and consumer issues in the medical and health sector which need increased attention. This is a new priority area.

On the competition side, for example, we have received allegations about attempts to limit access to products, patients, procedures or facilities.

The effect of anti-competitive conduct by medical professionals can be significant, particularly in regional areas.  One matter now before the Federal Court involves the Little Company of Mary where the ACCC alleges that the company introduced conditions on which medical practitioners could operate in the company’s Wagga Wagga hospital, which restricted the doctors from providing services to competing facilities.

On the consumer side, we are aware of a range of consumer issues, including allegations of unconscionable conduct and misleading and deceptive conduct by medical professionals.

Our work in this priority area will increase awareness within the medical profession and the broader health industry about both rights and obligations under the law.

Industry codes

In 2015, we will be taking a stronger line to protect small firms by ensuring compliance with industry codes of conduct.

Changes to the mandatory Franchising Code of Conduct came into play on 1 January this year, providing the ACCC with new powers to:

• issue infringement notices of $8,500 for body corporates ($1,700 for individuals and other entities) where the ACCC has reason to believe there has been a contravention of the code, and
• seek penalties of up to $51,000 from the Court for serious breaches of certain Code provisions.

These new remedies will significantly increase the effectiveness of the ACCC’s action against breaches of the Franchising Code which in turn will contribute to broader compliance in the franchising sector.

Importantly the new Code provisions also introduce a good faith obligation which will, I am sure, see us involved in some enforcement work in 2015. There are also other changes designed to increase transparency around the use of marketing funds and clarity around operating online.

We will continue our educational activities to ensure franchisee and franchisors are aware of their rights and obligations under the new Code.

We are also preparing for the introduction of a Code of Conduct to address unfair practices in the grocery sector. This will also be a major focus area for us in 2015.

Online

The online marketplace provides opportunities for both businesses and consumers but we need to make sure that the rights and obligations that exist in the bricks and mortar world are not ignored online.

We have had a focus on online issues since 2011. This year, the ACCC will concentrate on emerging systemic consumer issues in the online marketplace. One problem is significant delays by online businesses in addressing consumer complaints about either the product itself or delivery. We and other ACL regulators will be working with industry to improve responsiveness to consumer concerns.

Highly concentrated sectors

Competition and consumer issues in highly concentrated sectors will remain a priority. We have, of course, had some recent cases in the fuel and supermarket sectors.

In particular, we believe the outcome in the Coles’ unconscionable conduct cases, which were finalised late last year, sends a clear signal to larger businesses about appropriate conduct in commercial dealings with smaller suppliers.

In late December the Federal Court, by consent, made declarations in two proceedings instituted by the ACCC that Coles engaged in unconscionable conduct in its dealings with certain suppliers in 2011.

The Court ordered Coles to pay total pecuniary penalties of $10 million, as well as costs. Coles also provided a court enforceable undertaking to the ACCC to establish a formal process via an independent arbiter, Jeff Kennett, to provide options for significant financial redress for over 200 suppliers referred to in the proceedings.

In her judgment, Justice Gordon said:

“Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its conduct was ‘not done in good conscience’. It was contrary to conscience. Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand.  Coles withheld money from suppliers it had no right to withhold’[2]

This outcome has very important economic consequences. This is about smaller businesses being able to have faith in their contracts with larger businesses so they can plan and invest. Such issues are central to the proper functioning of a market economy.

We believe the Coles outcome sets a benchmark for conduct which can be applied to other businesses and other sectors.

Truth in advertising

We believe truth in advertising is also fundamental to the proper functioning of a market economy.

From phones to shoes which allegedly tone buttocks, in the past year or so we have seen a steady stream of outcomes. Including truth in advertising as a priority is a signal that we will continue taking a firm stance on such matters. Our action in this area serves a dual purpose. When advertising is untruthful consumers are misled, and honest traders are put at a competitive disadvantage.

We will prioritise those matters where misleading claims are made by large businesses with the potential to result in significant consumer detriment, or where the conduct is likely to become widespread if the ACCC does not intervene.

Carbon tax repeal

Ensuring that carbon tax cost savings are being passed through to consumers is, of course, a continuing focus. This activity will culminate in our April and July reports this year which will assess the full pass through of the carbon tax removal.

Scam disruption

With the assistance of other agencies, our commitment to disrupting dating and romance relationship scams continues. This project currently involves using financial intelligence to identify Australians who are sending funds to West African nations.

We then write to them and advise that they may have been targeted by a scam and offer confidential advice.

We are also working with intermediaries such as dating sites and financial institutions to make it harder for scammers to connect with victims and for money to be sent to scammers.

We took on this project because losses reported for relationship scams continue to be significant.

Vulnerable consumers

This year we will focus our consumer protection activities on issues affecting indigenous consumers, older consumers, and consumers who are newly arrived in Australia.

This is an area where will be drawing on partnerships. For example, we have a partnership with the Tiwi Island community, which I recently visited, to develop ‘Your Rights Mob’ You Tube videos to help inform and empower Indigenous consumers to stand up for their consumer rights.

Last year we extended the ‘Your Rights Mob’ social media activities on a national basis.

Our Indigenous outreach work has also helped us detect consumer law problems in several Indigenous communities.

In the past couple of years, we have taken action where older consumers have been targeted by unscrupulous sales people. By concentrating our efforts, we would like to give older consumers and their carers some extra confidence that their rights are being protected.

Consumers who have recently arrived in Australia also face a raft of issues and are vulnerable to deceitful operators. These consumers are often from culturally and linguistically diverse backgrounds and their understanding of consumer rights under Australian law is understandably lacking.

We will not hesitate to take appropriate enforcement action against businesses that attempt to exploit these communities for commercial gain.

Other key activities

I will finish by previewing some other key activities and developments taking place this year.

Harper Competition Review

The competition review panel is, of course, only weeks away from handing a final report to Government.

Competition policy is about removing barriers to competition and having appropriate competition laws. The Harper review is addressing both issues. There is, of course, push back from small businesses to the former and from big business to the latter.

Murray Report

Late last year, the Murray Report identified competition as one of the main areas where there is significant scope to improve the functioning of the financial system.

In the financial sector there is always a tension between financial regulators focusing on prudential and competition issues. Murray wants more focus on the latter.

The ACCC, of course, welcomes this. While we have four major banks competing against each other, this sector would be more dynamic and bring more benefits to consumers if there could be more competitive pressure brought on the four major banks.

No matter how many competitors there are, stable oligopolies do not yield the best results. Markets need to be constantly and fully contestable.

This year will also see the Council of Financial Regulators consider opening up the Australian Stock Exchange (ASX) equities clearing monopoly to competition, with the Government announcing a review of competition in clearing last week. Chi X, for example, has raised significant concerns about the current voluntary access regime that ASX has implemented.

In the context of the Murray inquiry it will be interesting to see how this issue plays out.

The ACCC be working with the Council of Financial Regulators and the financial services sector to consider the benefits of introducing competition in equities clearing.

Privatisation

Privatisation appears to have a bad reputation because consumers often associate it with higher prices.

Privatisation should, of course, be about improving outcomes for consumers as the private sector can often run commercial enterprises more efficiently. Too often, however, governments see the objective of privatisation as a fiscal one, and so seek to maximise sale proceeds by raising prices just before a sale, or by putting in place anti-competitive or regulatory arrangements that allow this to occur post sale.

It is no wonder many people associate privatisation with higher prices.

The ACCC will continue to monitor the various sales programs being conducted by State and Territory Governments.

In addition to assessing bidders for these assets in the merger context, we will continue to raise concerns where significant assets are being sold without appropriate market structures and/or access and pricing arrangements being put in place upfront.

We will be looking out for arrangements that limit competition or minimise or avoid appropriate regulation in an attempt to boost sale proceeds.

Our concerns are increased where, in the case of the Asset Recycling Initiative, the Commonwealth Government proposes to provide incentive payments based on the size of the sale proceeds. We think the Commonwealth should check that there are no anti-competitive arrangements, and that market structures and regulation are appropriate, as we recently argued in our submission to the Senate standing economics committee inquiry to Privatisation of state and territory assets and new infrastructure.[3]

Communications

In the communications sector, we will concentrate on competition issues arising from the construction of the NBN and playing our part in ensuring a smooth transition for consumers to new NBN services, particularly where we see practices that breach our Act

The Government has, for example, asked us to consult with industry to ensure that information flowing to Telstra from the NBN arrangements does not give it an unfair advantage over competitors.

Aside from the NBN, the ACCC will finalise the terms and conditions of access to a range of services including the legacy services provided over Telstra’s copper network. This will be a major focus for 2015.

These services continue to deliver the bulk of Australian’s communications services to end-users not yet on the NBN. We seek to ensure continued robust competition in the retail sector for consumers awaiting migration to the NBN.

Water

There continues to be a lot of interest in developments taking place in the water sector.

Last year’s independent review of the Water Act found that while progress has been made, further work could be done to improve outcomes in the Murray-Darling Basin.

The ACCC has been asked to review the water charge rules, which regulate charges for water infrastructure, planning and management. These do not extend to urban water activities.

Over the last five years, the rules have addressed significant barriers to trade through the regulation of termination fees and improvements in pricing transparency.

The review will consider, among other issues, how to ensure Basin-wide greater consistency in charging regimes while reducing regulatory burdens on the sector.

We will be carrying out extensive public consultation to inform our advice, which is to be provided to the minister by the end of the year.

Closing remarks

Competition law, consumer protection and economic regulation are complementary tools, with the objective of making our market economy work as it should.

This will be a fascinating and fun year on all these fronts for us all.

Thank you for your time today.