Australia: Competition Review 2017

By Dave Poddar, Clifford Chance

Clifford Chance’s Dave Poddar explores the current state of competition and consumer laws in Australia and the impact of an ever-changing regulatory framework.

Clifford Chance

Australia’s current framework

Over recent times, the catalyst for many of the regulatory changes made, and proposed to be made, to Australia’s competition and consumer protection framework has been concern regarding the actions of dominant market participants in what are perceived to be increasingly concentrated Australian markets. For example, amendments have been proposed to Australia’s primary competition law, the Competition and Consumer Act 2010 (Cth) (CCA), to introduce tougher misuse of market power provisions to regulate anti-competitive unilateral conduct by large corporations. Regulatory protections for consumers and small businesses have also been enhanced, aimed at least in part at addressing imbalances in bargaining power; for example, with the extension from late 2016 of the unfair contracts terms regime from business to consumer to also include business to small business dealings.

At the same time as these changes to Australian competition and consumer laws have been introduced (or are being considered) by Australia’s parliament, the Australian economy, which is a relatively open economy with low barriers to entry and virtually no import restrictions, has in fact been subject to growing disruptive influences from global corporations in a broad range of sectors, such as Netflix, Facebook and Google in the media sector, Uber and Uber Eats in the ride sharing and delivered take away sectors and Airbnb in the accommodation sector, to name just a few.

Given that the focus of regulatory activity has arguably not recognised the changing nature of competition in Australian markets, Australian businesses are facing uncertainty not only as to how the Australian antitrust agency, the Australian Competition and Consumer Commission (ACCC), will administer these new laws but also as to how they will compete in a period of ongoing significant disruption to traditional business models. Australian businesses, in times of such uncertainty, will benefit not only from government taking steps to ensure that there is as much clarity and certainty as possible in the competition and consumer regulatory framework, but also from the ACCC providing clear guidance, including “bright line tests” and, wherever possible, appropriate guidelines on the interpretation of new laws and its associated enforcement focus. Having such certainty will assist in promoting vigorous competition by business for the benefit of consumers.

Competition and consumer law reform: Driven by reviews

The Australian government commissioned a Competition Policy Review (called the Harper Review after the chair of the Review panel) in 2014. That review was the first comprehensive review of Australia’s competition laws and policy in 20 years, with the last broad review being the National Competition Policy Review chaired by Professor Hilmer, undertaken in 1993. The final report of the Harper Review was released on 31 March 2015 and contained 56 broad-ranging recommendations. The government released its initial responses to the Harper Review (including a response on Australia’s national access regime) on 24 November 2015 and since that time has continued to consult in relation to the recommendations.

Reflecting the Harper Review and the government’s ongoing consultation processes, on 30 March 2017 the Australian government tabled in parliament the Competition and Consumer Amendment (Competition Policy Review) Bill 2017 (CCA Bill), which has proposed wide-ranging changes to the CCA. Those changes relate to cartels, price signalling and concerted practices, exclusionary provisions, secondary boycotts, third line forcing, resale price maintenance, authorisations, notifications and class exemptions and access.

The CCA Bill was introduced in parliament two days after the Australian House of Representatives passed the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (Misuse of Market Power Bill), which is also an outcome of the Harper Review. That Misuse of Market Power Bill, which must still pass through the Australian senate before it becomes law, amends section 46 of the CCA so that a corporation with a substantial degree of market power will be liable for engaging in conduct which has the purpose or effect of substantially lessening competition in any market. This Bill has been quite controversial with many businesses concerned that it will inadvertently capture pro-competitive conduct.

The changes that will be introduced to Australia’s competition law by the combined impact of the CCA Bill and the Misuse of Market Power Bill, including changes to the merger processes under the CCA, will be very significant. Reflecting conclusions of the Harper Review, the bills address perception issues raised by community, business and consumer groups as to increased concentration in Australian markets, particularly in the reforms proposed to conduct provisions dealing with abuse of dominance/misuse of market power.

Unfortunately, however, implementation of many of the recommendations of the Harper Report in relation to specific sectors such as town planning and human services (including health, education, job services, social housing and aged care), has been deferred for political reasons. The Australian government has been unable to reach agreement with state and territory governments, which also have regulatory responsibilities in these areas, on the appropriate approach to implementation.

Not content with only undertaking a comprehensive review of Australia’s competition law, the Australian government also commenced a review of the Australian Consumer Law (ACL) in mid-2015. As the ACL is jointly administered and enforced at both the commonwealth and state and territory levels, the review was jointly commissioned with the state and territory governments. The terms of reference for that review required it to consider the effectiveness of the ACL, having regard to the first five years of the operation of that law, and whether the ACL is sufficiently flexible to address new and emerging consumer issues. The final report of the ACL review was provided to relevant ministers in April 2017. To paraphrase Simon Cohen, the chair of Consumer Affairs Australia and New Zealand (which undertook the review), the ACL has been successful – it has enabled consumers to become more empowered, allowed for a reduction in business costs and also reduced the number of disputes. Nonetheless, the ACL review did put forward a number of proposals (both legislative and non-legislative), including in the areas of product safety, the regime applicable to product recalls, consumer guarantees and the like. The review considered that changes in these and other areas would be necessary to ensure the ACL remains relevant in a changing Australian marketplace. Again, as in the case of the Harper Review, there is clearly a concern with concentration of markets and the need to protect the consumer evidenced in the ACL Review report. This can been seen in recommendations such as increasing the monetary threshold that would apply to consumer transactions captured by the ACL from A$40,000 to A$100,000 and expanding the unfair contract terms regime to contracts regulated under the Insurance Contracts Act 1984 (Cth).

No formal response has yet been provided by any government to the ACL Review. Any legislative changes arising from the review will take quite some time to implement, given the need for these to be agreed not only at the federal level but also at a state and territory level. However, some initial steps have been taken. The Australian government recently announced that, subject to passage of the necessary legislation, from 1 July 2018 penalties for breach of the ACL will be increased to A$500,000 for individuals and the greater of A$10 million and three times the benefit received or, if that cannot be determined, 10% of annual turnover for companies.

Disruption in traditional markets: the impact of the changing regulatory framework

At the same time as changes to competition and consumer laws are in the process of being introduced, the Australian economy has been experiencing considerable disruption and fragmentation across a number of sectors, including media, transport and tourism. To take two examples, Netflix was launched in Australia in March 2015 and by May 2016 was estimated to have more than 1.8 million subscribers and the share of Australia’s aggregate advertising spend for online advertising went from 19% in 2011 to an incredible 38.3% in 2015. Both of these changes have had a significant disruptive impact on Australia’s traditional media sector.

As demonstrated by the following discussion, some of the regulatory changes being considered by the Australian government will be likely to assist Australian businesses respond to such disruption, which will be of benefit to consumers, though some changes may well have the opposite effect.

The disruptive changes in the media sector have been recognised by the Australian government in its recently announced media reform package. The Australian government is proposing the removal of two of the rules governing Australian media mergers: the “75% reach rule” and the “two out of three rule”. These rules provide that no person may be in a position to exercise control of commercial television broadcasting licences where the total licence area population exceeds 75% of the Australian population and prohibit any merger if it could involve a person having control of media platforms in each of television, radio and associated newspapers in any market.

Should these changes become law, merger activity among free-to-air television broadcasters is anticipated to occur, allowing metropolitan broadcasters to consolidate with their regional counterparts, reduce costs and respond to changing customer viewing preferences, particularly the demand for streaming services. It is very likely that other merger activity will also occur. While, of course, any merger in the media sector will still be subject to the general merger provisions in the CCA, that the Australian government is considering changes to these long standing media sector specific rules is an explicit recognition of the impact of disruptive changes to Australia’s economic and industry structures.

Not all proposed changes to competition law will necessarily equip Australian businesses to deal with disruption. As mentioned previously, the proposed Misuse of Market Power Bill has been quite controversial, given that it will change the section 46 misuse of market power provision in the CCA to a so-called “effects test”.

The current section 46 test essentially involves a prohibition on a corporation with a substantial degree of power in a market from taking advantage of that power for an anti-competitive purpose, with such purposes including:

(a) eliminating or substantially damaging a competitor in that or any other market;

(b) preventing the entering of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

The new misuse of market power test will, as mentioned previously, provide for important changes. There will no longer be a need, to establish a breach, that the relevant corporation took advantage of its market power and there will be no need to prove that such a corporation had an anti-competitive intent. Therefore it is feasible that the ACCC could take action against a corporation under the new test where the corporation itself believes that it has simply been fiercely competing with its rivals.

Assuming the courts apply the new test in the manner that appears to be intended, not only will large businesses in Australia be faced with disruption, but the competitive response by these large firms to the “disruptors” will be complicated by a concern that their actions may inadvertently breach section 46. This is unlikely to be in the best interests of consumers, who benefit from robust competition. 

Therefore it seems clear that, although in some cases the Australian government has recognised the impact of disruption in the Australian market place and is taking steps to allow industry to move quickly to compete, this is not always the case. Concerns about perceived market dominance have led to legislative proposals that may affect the ability of Australian companies to respond to the challenges that they face. It is hoped that the ACCC will not enforce competition and consumer laws in a manner that dampens innovation by Australian businesses, which would ultimately negatively affect consumers. However, only time will tell.

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