Queensland University of Technology Law and Justice Journal
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WARREN PENGILLEY [**]
Necessarily my subject matter conjures up definitional issues. The first
definitional issue is what is meant by “free”.
The meanings
given to the word ‘free’ in the Macquarie Dictionary occupy the best
part of a whole column. Those most
suited to the subject I here discuss
probably are:
My brief is to speak on regulation, de-regulation
and competition law in the above context.
I speak only in relation to the
domestic scene. The issue of free trade in the international arena is one for a
paper, or a series
of papers, in its own right.
In a commercial context, the opposite of ‘freedom’ and
‘competition’ is probably ‘regulation’.
The Macquarie
Dictionary defines ‘regulation’ as ‘a rule or order prescribed
by authority’. To ‘regulate’
is to control or direct by rule.
The above “objective” definitions are not, however, of great
assistance in my view. Commonly used words are not scientific
terms. Within
the dictionary definition of “regulation” any form of government
intervention is covered. In common parlance,
however, I think most of us would
reject this. Economic activity cannot exist without laws which govern its
existence. Without
laws, things such as money, credit, corporations and the
like simply do not exist. Further, it is inconceivable that economic activity
can function in a context of social anarchy. Therefore, government intervention
in a “law and order” or “defence”
context is not what I
would regard, at least in the present context, as
“regulation”.
It is necessary, therefore, in my view, to
distinguish between general legal standards against which economic activity is
conducted
on the one hand and “regulation” on the other. The two
differ significantly in their nature and operation. “Regulation”
has within it the concept of “licensing”, “certifying”,
"making orders”, “approving”, or
“directing”.
Detailed regulation generally involves decisions on an on-going and case-by-case
basis in circumstances
which do not usually result in a precedent which can be
applied in a more general context. This is the antithesis of general background
laws set up to enable industry to operate or general laws which specify how
industry is to operate.
It is this view of “regulation” which
I here adopt.
It is immediately obvious, given the above, that a body such as the
Australian Competition and Consumer Commission (the ACCC) is both
a regulator
(in that it approves, directs, restricts and certifies various matters on a
case-by-case basis – such as, for example,
setting telecommunications
access prices) and also a non-regulator, or perhaps a de-regulator (when it
enforces general background
laws governing competitive conduct or general
background laws prohibiting misleading or deceptive conduct). It is also the
case
that the court system, generally regarded as having nothing to do with
regulatory activity, can be a
regulator[1] as well as enforcing laws
compelling market activity. The fact of regulation has nothing to do with who
does the regulation. A regulator
is any person with the power to regulate.
Private parties may be regulators just as effectively as many government
entities.[2] Indeed, much of our
competition law is aimed at preventing what I would call private regulation.
There is, in light of the above, a fundamental philosophical conflict in
relation to one’s approach to the Trade Practices Act.
In my
view, the so-called “free enterprise” economy will not be truly free
(and it may not be very enterprising either)
if there is no mechanism to ensure
that its members are unconstrained by obstructions and obstacles which other
market participants
can place in their path. I, therefore, support the basic
competition philosophy behind the Trade Practices Act. In this context,
I regard the Act as a tool of ensuring “free trade”.
However, much of that Act, and much of the ACCC’s activities in
relation to its enforcement, are now clearly regulatory in nature.
So the ACCC
can determine access conditions to so called essential facilities, it has a
significant role in determining telecommunication
prices and has exercised a
heavy regulatory role in activities such as gas and
electricity.
One’s views as to the desirability of the Trade
Practices Act’s regulatory activity, and the way in which it is
exercised, are not necessarily the same as one’s views as to the
desirability
of background competition laws by which industry conducts its
overall activities.
Philosophically, therefore, it is quite possible to
regard the Trade Practices Act in the same way as the curate’s egg
– good in parts – and there is no necessary inconsistency in doing
so.
Before proceeding further, it is appropriate to discuss some of the more
obvious problems which present themselves with the rise of
the government
regulator.
This is the age of competition. It is also the age of so called
“de-regulation”. Or so the rhetoric goes. Yet but a
cursory
examination of the facts reveals that Australian commerce is now subject to a
whole new wave of regulators – at both
Commonwealth and State and
Territory levels – which were not even contemplated a decade
ago.[3] These regulatory authorities,
largely, but certainly not solely, set up as the result of the corporatisation
or privatisation of
governmental trading entities have usually been established
on the principle that they further competition. Yet their functions
are
primarily regulatory in nature. The facts are that, even confining oneself to
the Federal level, it is now extremely difficult
to ascertain just who is
responsible, politically and administratively, for
what.[4]
Regulatory spread is inevitable. It is an inherent factor in regulation. As one aspect of economic life comes under regulation, individuals find methods of frustrating the regulator. Thus the regulator feels it necessary to extend regulation to encompass those fields which require control if the original object of regulation is to be obtained. This involves a widening scope of regulatory action over ever increasing segments of the community. Some random examples clearly demonstrate the point made.
The Prices Surveillance
Authority[5] thought it could not
properly carry out its task to monitor aeronautical charges unless it could also
monitor car rental charges,
leasing charges and other commercial arrangements
entered into by the Federal Airports
Corporation.[6] The regulation of one
area of charges, according to the Prices Surveillance Authority, necessitated
the regulation of another.
The ACCC believes that the Prices Surveillance Act, set up to
survey prices in the economy, should now be revised to enable it to be a pricing
regulatory instrument. The ACCC believes
that it should have the power to fix
prices and that its decisions should have the force of law. The ACCC believes
that it should
be able to consider price increases in advance of their
implementation and should be able to impose conditions on their
implementation.[7]
The power
given the ACCC to regulate ‘access prices’ to ‘essential
facilities’ pursuant to the ACCC’s
arbitration powers under the
Trade Practices Act’s Pt III Access Regime is also now regarded by
the ACCC as inadequate. The ACCC believes that an effective access pricing
scheme will
not eliminate the potential for excessive pricing. So, the ACCC
seeks the right to determine end product prices in addition to access
prices,
describing this as a power which would be ‘a useful and important adjunct
to access
reforms’.[8]
Not only
does regulation expand to encompass more activities. The regulator also seeks
to involve itself more deeply in decisions
as to how entities conduct their
business. Regulatory spread is thus both vertical and horizontal in nature. In
its “commercial
churn” conflict with Telstra, for example, part of
the ACCC complaint was the technology which Telstra employed in relation
to the
transfer of a service to a new provider. The ACCC sees the solution to this as
being that it should have the power to require
a telecommunications entity to
engage in specific conduct, namely conduct that the ACCC believes should be that
of a carrier or service
provider in a competitive telecommunications
market.[9] The ACCC sees this as
requiring a telecommunications entity to carry out a positive act, such as
replacing its technology, at the
direction of the ACCC. Such a power would give
the ACCC the legal right to mandate the technology with which a
telecommunications
entity carries on its business – an intrusion which, so
far as I am aware, applies to no other regulator or industry in Australia
except
where safety is an issue.
It is simply not possible to have just “a little bit of
regulation” in any particular industry. The above examples of
the
expansion, or attempted expansion, of regulatory power illustrate this point.
There are any number of akin examples which could
be added to this list.
One must question how wise regulators can be in any event –
especially in rapidly changing markets such as the telecommunications
market.
Our long term telecommunications vision of 13 years ago is, in retrospect,
laughable.[10] I wonder how
laughable our most recent telecommunications policy, based on television entry
restrictions and a prohibition of alternative
supply of many products by way of
the internet, will be in light of alternative available information providers
and available alternative
technology. Here we see the expansion of regulatory
powers to thwart, not encourage, innovation and technology. Can such regulation
succeed in view of the fact that the internet is so notoriously difficult to
control? Is it even desirable, long term, that such
regulation should succeed?
We will all await the outcome of this with interest. My bet is that in 13 years
time the present regulatory
controls will be as laughably irrelevant as the
controls of 13 years ago are to today.
If we ask, as a matter of principle, why competition law prevents
industry members from getting together to make joint decisions on
pricing and
marketing, we get various answers. At least one concept involved, however, is
inherent in the nature of decision making
itself. We encourage diversity of
decision making because, although some decisions may well be wrong, we believe
it desirable that
no one decision maker should have the capacity to make a
decision which is a tragedy for the nation as a whole. Probably, when it
is all
boiled down, this is what we most fear from monopoly power. We may perhaps,
therefore, tolerate some inefficiency to guard
against the above possibility.
Diversity of decision making puts a safety net under our business decision
making and to a degree
is a protection against the limitations of human
wisdom.
This principle is just as applicable to governmental decision
making as it is to private decision making. Human wisdom is not the
particular
province of private or public decision making. There is much to be said for
diversity of decision making simply because
of the economic safety net which
such diversity brings. Consistency with competition law principles demands that
these principles
also be applied to public sector decision makers.
This
argument should not be misunderstood. It is not a disparagement of the wisdom
of the members of any regulatory body. It is
merely acknowledging that they,
like the rest of mankind, have limitations on their wisdom and that a system to
ensure that these
limitations do not result in a disaster for the nation as a
whole is a much better system than one which permits this possibility.
Neither
is the argument about the effectiveness or ineffectiveness of the implementation
of decision making. It is not suggested
for one moment that decisions should be
ineffective or unable to be enforced. Neither does it follow that if decision
making power
is diversified, this necessarily gives rise to weakness in
implementing decisions taken. The philosophical point is about who makes
the
decisions, not their enforcement.
On the basis of the above logic,
power aggregation is something to be looked at with concern. Yet power
aggregation frequently accompanies
regulation - and it certainly has done so in
Australia. The most obvious example is that of the ACCC. It has powers in a
wide number
of industries.[11] It
also has a wide variety of divergent functions – price setter, competition
enforcer, consumer advocate, adjudicator, publicist,
educator and arbitrator, to
name but some. The problem of being impartial, and being seen to be impartial,
is magnified in the case
of such hydra headed functions all being bestowed on
one entity. So, if the ACCC sets policy by way of guidelines, it can well be
argued that it cannot give due adjudicative impartiality to particular instances
of conduct which may challenge such policy. If
consumer benefit is but one
factor to be weighed in a price setting or arbitration context, can the ACCC be
expected to give appropriate
impartial consideration to other factors when the
protection of consumer interests constitutes such a large part of its charter?
The ACCC sees no problem in fulfilling all these roles. Many outside the ACCC,
however, do not see it this way.
There are clear warning signs that government regulation is not lightly
to be embarked upon. But all countries have government regulation,
even the
most capitalist.
Those who argue for regulation in various industries
argue at least the following reasons for governmental intervention into
“free”
trade:
Given the above, trade in some industries will never be
“free” in the sense of not having any government regulation.
But I
think many questions should be seriously asked before a government regulatory
solution is imposed. I believe that all too
frequently this is not done. A few
of these questions might well be:
If government regulation is not subject to appropriate checks and
balances, there is a very real danger that regulation by legal process
will be
replaced by regulation by arm twisting. Arm twisting ‘is a threat
by an agency to impose a sanction or withhold a benefit in hopes of encouraging
‘voluntary’ compliance
with a request that the agency could not
impose directly on a regulated
entity’.[14]
Arm
twisting or, as some may regard it, regulatory bullying, can manifest itself in
a variety of ways. The greater the regulatory
power, the more credible an arm
twisting threat is and the more likely it is that regulators will engage in the
practice. No-one
can bully from a state of perceived weakness.
Arm
twisting is particularly apparent in situations where:
Government regulation involves a lot of paperwork. The fact that
continuous submissions have to be made to government for decisions
often simply
outweighs the ability of the organisational structure to cope. This is bad for
business in being put to the cost of
having to make the submissions. It is bad
for the public because only a small proportion of regulatory decisions can be
made on
careful evaluation and well considered judgments. What follows, I
think, is that, even on a cursory evaluation, government regulation
cannot be a
productive solution to anything but select problems. Government regulation can
at best be seen only as a method of curing
specified ills. Like medication,
regulation should not become the basic norm or diet for an essentially free
enterprise system.
Perhaps the major difficulty in relation to government regulation is
keeping such regulation to the minimum necessary to the curing
of specified ills
in the economy. If there is governmental regulation, the rules of engagement
should be that governmental intervention
be implemented in conformity with
community views of social justice. In other words, the regulator must
adjudicate fairly and impartially.
Any regulatory mechanism should be such as
to ensure that this result does, in fact, occur.
Private regulation can have all the defects of government regulation.
There is no reason to believe that private price fixing and
private licensing
agreements are at all attuned to efficiency considerations. Almost always such
arrangements favour present market
players to the detriment of new entrants.
Private bureaucrats build power bases just as government bureaucrats
do.
There is, however, a fundamental philosophical difference between
private and government regulation. Government regulation is instituted
by the
nation’s elected representatives for the public benefit. Private
regulation is instituted by a private sectional group
for private
benefit.
I attach as an Appendix to this paper a summary of the types of
restrictions which private groups may impose, classified on various
bases.
These restrictions apply only to arrangements between competitors and, of
course, these, though the most usual, are not the
only arrangements with which
the Trade Practices Act is concerned.
The inevitable conclusion
from the examples cited in the Appendix is that the absence of government
regulation does not ensure the
absence of private regulation. Neither does the
absence of government regulation ensure the presence of competition. Nor does
the
absence of government regulation ensure individual freedom of trade. The
individual can have his or her freedom of choice curtailed
just as much by
private regulation as by government regulation. Only the regulator, not the
fact of regulation, has changed. In
both forms of regulation, the community
loses the benefit of individual decision making by persons motivated in their
own best interest
and responsible for what they decide. In other words, the
community, under both forms of regulation, loses the benefit of free
trade.
What is needed, therefore, is a law to ensure that, in the absence
of governmental regulation, the individual does, in fact, have
freedom of trade.
This is what the restrictive trade practices provisions (Pt IV) of the Trade
Practices Act are all about. Pt IV of the Act is not regulatory. It does
not, for example:
Australia is fortunate in having a comprehensive competition law which
prevents private regulation inhibiting free trade.
At the nub of Australia’s competition law is a prohibition on price
fixing and collective boycotts. Examples of this type of
conduct are set out in
the Appendix. A fundamental ban on this type of conduct in Australia is to be
commended. In the case of
collective boycotts in particular, there can be very
fundamental civil rights which are infringed when a group of competitors
“bully”
another. The expulsion from, or denial of entry to, trade
associations, often with consequences impinging upon a party’s capacity
to
sell product are classic examples of this. Cases prior to, and in the early
days of, the Trade Practices Act show just how severely freedom of trade
can be restricted by private collective boycott
arrangements.[15]
Both price
fixing and collective boycott arrangements are rigorously enforced by the ACCC.
Despite odd occasions when the ACCC has
mounted hopeless
cases,[16] no one can doubt that
this enforcement, over all, has considerably benefited free trade and
competition.
Of recent times there has been a call by Professor Fels,
ACCC Chairman, for the imposition of gaol sentences for “hard core”
price fixing and boycotting. Provided that gaol sentences are limited to
“hard core” conduct, and this conduct can be
defined with precision,
I support the call. Price fixing and collective boycotting have been shown,
around the world, to be totally
lacking in public benefit and to be engaged in
purely for self interested reasons. The law is clear and there can be no
excuses
for such conduct based on doubts as to how the law will be interpreted.
Above all, however, this conduct is such a basic restriction
on an
individual’s freedom to trade as he or she wishes that it must necessarily
be condemned in the strongest possible terms.
A gaol sentence is such a
condemnation. It also encourages, if coupled with a sound policy of immunity
from prosecution, the reporting
of collusion to the ACCC for appropriate action
to be taken by it.
The ban on re-sale price maintenance has also had the benefit of
permitting resellers to price and advertise as they wish. Resale
price
maintenance law prohibits a supplier disciplining a reseller for advertising or
selling below a price specified by the supplier.
In most cases, it is the small
reseller businessperson seeking to obtain a competitive pricing edge who is
subject to “disciplining”
by a powerful supplier for seeking to do
so. Preventing suppliers from disciplining those who wish to sell or advertise
below a
supplier’s specified price is, in my view, a very considerable
protection to a reseller’s “freedom” to trade
as such reseller
wishes.
Section 46 of the Trade Practices Act prevents a party having a
substantial degree of power in a market from taking advantage of that power for
the purpose of hindering
market entry or hindering competitive activity. It is
intended to underwrite the freedom of weaker entities to trade as they wish
without being disciplined by the powerful in the market.
I think the jury
is still out on s 46 – not because of its wording or the purposes it seeks
to serve but because of the court
interpretation of the section. Still the
leading case is the High Court judgment in Queensland Wire Industries Ltd v
BHP.[17] This case imposed
severe restrictions on an entity’s freedom to deal as it wished and on the
prices which a market participant
could charge. In effect, the court was
imposing a regulatory, not a “competition” decision on Australian
industry by
this judgment. One of the real fears as a result of this case was
that the court could be placing itself in the position of steel
industry
regulator.[18] However, the
Queensland Wire decision has been recently ameliorated by the High Court
decision in Melway[19] which,
in the circumstances of that case, confirmed the right of a supplier to
establish its own selective distribution network and
to refuse to deal with
persons not in that network.
One hopes that s 46 will, in due course, be
interpreted as a section which protects freedom of trade and freedom of decision
making
rather than one which leads to regulatory solutions, be the regulator the
ACCC or the Federal Court of Australia. The trend to interpreting
the section
as being one protecting freedom of trade is apparent. But this result is far
from assured.
Without authorisation from the ACCC on “public benefit”
grounds, mergers are not permitted in Australia if they result
in a substantial
lessening of competition in a State, National or (since 26 July 2001) Regional
market. The reason for a merger
law is said to be that a merger represents the
ultimate price fixing arrangement. If price fixing arrangements are to be
controlled,
then activities which permit the same result without arrangement
(that is achieve the same result structurally) should also be controlled.
Another rationale for merger law is that it prevents the misuse of market power
by preventing the acquisition of the relevant market
power in the first
place.
The ACCC believes that merger law with a substantial lessening of
the competition test is a crucial aspect of competition law. However,
consistent with this basic stance, the ACCC is anxious to point out that it
opposes very few mergers. Of those opposed by the ACCC,
a large proportion are
ultimately cleared by way of public benefit authorisation or by undertakings
given to the ACCC. By way of
example, five mergers were opposed in 1997-98 and
six were resolved by undertakings. Seven mergers were opposed in 1998-99 and 10
were resolved by way of either undertakings or authorisation. In 1999-2000, the
Commission objected to nine mergers. In five of
these mergers, undertakings
were given which allowed the merger to proceed. In four other cases, the merger
did not proceed.[20]
There is
no doubt that there are heated views, one way and the other, in relation to
mergers. One view is that there is no point
in having a merger regime that is
purely domestically focused. The view asserts that the e-commerce world is not
interested in borders.
The ACCC Chairman, Professor Allan Fels, asserts that
global arguments are an always invoked rationalisation by companies seeking
to
defend mergers which radically increase their domestic market power. The job of
the ACCC, in his view, is to sort out the merits
of each case by a careful case
by case evaluation.[21]
In
theory, merger law aims at the same protection of freedom of trade as do the
other aspects of Pt IV of the Trade Practices Act previously discussed.
In reality, it is a very unusual merger which needs any trade practices
attention.
It is interesting to note that the two mergers which Professor
Fels regarded, up to 1991, as the most heinous permitted mergers to
that date
(but ones which could not be then touched because of the then (in his view)
inadequate “dominance” test) were
the Coles/Myer and
Ansett/East–West Airlines mergers. This shows the inability of anyone to
predict the future accurately.
Even though both these mergers went through and
gave, in Professor Fels’ view at the time, unwarranted market power as a
result,
it is common knowledge that now each of these companies is suffering
because of the competitive pressure each has had to bear. [Author’s
note:
Since writing this article, Ansett has ceased carrying on business and its
assets are subject to administration to pay its
creditor’s.]
Part IV of the Trade Practices Act promotes freedom of trade.
This is most noticeable in its prohibitions on price fixing, collective
boycotting and resale price maintenance.
Prohibition of these practices is
fundamental to the protection of an individual’s freedom of trade. The
misuse of market
power and merger provisions are theoretically aimed at the same
objectives but the jury is still out in relation to their actual
performance.
Whatever that performance is, it is likely that there will continue to be
differing views expressed by the ACCC and
various industry groups in relation to
it. Though some regard protection from misuse of market power and
anti-competitive mergers
as basic to trade practices protection of free trade, I
am more circumspect. Both could significantly fail and yet free trade would
still be protected so long as there is strong enforcement of the prohibitions on
price fixing, boycotting and resale price maintenance.
There is now much of the Trade Practices Act which is not, like
Pt IV, based on establishing background rules of the game but upon
regulating industry. The major areas of the
Trade Practices Act in this
regard are:
| • | a general access regime under Pt IIIA of the Act. This part sets up the method by which a party may seek access to an essential service of national importance; and |
| • | Telecommunications specific legislation under Pt XIB and Pt XIC of the Act. |
Each of these
parts gives the ACCC a power to set prices and conduct arbitrations on access
terms and conditions. Although these
parts of the Act are established in the
name of competition, they provide for regulatory solutions to competition
problems (given
the definition of “regulation” which we have
adopted[22]). Such provisions are
established to control monopolies and/or permit access to resources not
reasonably capable of being duplicated
but to which competitors need to have
resort in order to participate in the market. To permit access to
“essential facilities”
is one major justification for the
establishment of regulatory
regimes.[23]
The Pt IIIA Access Regime is set up to enable parties to have access to
essential services which are of national importance.
As we have
seen,[24] the main issue of
“free trade” in relation to regulatory regimes is a consideration of
whether such arrangements are
administered fairly and impartially. Fairness,
in my view, also covers matters such as timeliness and efficiency in handling
matters.
In my view, the Pt IIIA Access Regime has not succeeded in
fulfilling the above objective. This is not to deny that there may well
be
considerable merit in what the Regime seeks to achieve. It is simply to assert
that the Regime has not been successful in achieving
these objectives. Above
all, because of the way in which the regime is set up, it cannot deliver
fairness in even the most basic
elements of trading ie in relation to the price
that has to be paid for a commodity. This issue is determined, without
legislative
guidelines, by the ACCC in a way which has de facto retrospectivity
and which cannot be predicted by an infrastructure investor at
the time of
budgeting its project.
The following are some of the reasons for the
above view:
The establishment of a regulatory access
regime in relation to nationally significant and non duplicatable facilities can
result in
significant benefits in permitting more parties to participate in the
competitive process. Such a regime can be seen, therefore,
as one method of
removing private restraints on trade and of encouraging freer trade. If the
regime has inherent certainty built
in and parties make decisions based on
available and known criteria, then the most important aspects of fair play in
competition
are preserved. But the access regime in Pt IIIA of the Trade
Practices Act does not have these factors. Further, the multi roles
fulfilled by the ACCC, a body with a significant consumer oriented role, makes
some facility owners believe that their interests will not be adequately
considered in the process of determining access conditions.
Whether or not this
is so is not material. It is part of industry perception. For centuries, a
cardinal rule has been that justice
must not only be done but be seen to be
done. The Pt IIIA scheme does not, in the minds of many, fulfil this basic
requirement which
is just as important in the case of regulatory justice as in
the case of any other form of justice. There is, therefore, in my view,
a
strong case for reducing or eliminating the ACCC from all arbitration and
adjudication functions in relation to the Access Regime.
The brief
conclusion in relation to the Access Regime is that the Rules of Engagement need
a fundamental re-vamping.
There is, however, one consolation. On 10
October 2000, the Assistant Treasurer, Senator Rod Kemp, announced that the
Productivity
Commission had been asked to undertake a review of Pt IIIA of the
Trade Practices Act and report within 12 months. The Productivity
Commission issued a position paper in March 2001. This paper expressed concern
at
a number of matters in the Pt IIIA Regulatory Regime. Hopefully, this
Review of the Access Regime will sort out the many problems
in it, some only of
which have been here discussed.
Telecommunications is an essential area for study in relation to
regulation. It is an important model for regulation which is claimed
to be
“de-regulatory” and “pro-competitive” in nature. It
appears to be the model which the government is
presently inclined to adopt in
relation to other projected legislation in this area - notably in relation to
legislation to regulate
Australia Post. If we have got it wrong in relation to
telecommunications regulation, we should not perpetuate error.
As has
previously been noted, telecommunications is subject to a specific regulatory
regime under Pts XIB and XIC of the Trade Practices Act. Special
legislation was enacted because of the technical nature of telecommunications
which means that it cannot be readily accommodated
into the general access
regime under
Pt IIIA.[30]
If such
regulation is necessary (and it may well be on the basis that parties, in order
to compete, require access to the Telstra
communications network) then the
system imposed should be fair and free of imperious legislative
requirements.[31] This appears to
be far from the actuality.
Parts XIB and XIC of the Trade Practices Act cover the regulatory
powers given to the ACCC in relation to telecommunications though the general
restrictive trade practices provisions
are also applicable to the
telecommunications field. The additional powers given to the ACCC are immense
in their scope. They are
additional to any powers conferred under the general
Pt IIIA Access Regime.[32]
The relevant provisions are:
1999 amendments to the Act have
amended the Pt IV provisions even further. Alone in commerce, conduct of an
entity in the telecommunications
market can be considered along with the
‘engaging in other conduct with the combined effect or likely
effect’ of substantially
lessening
competition.[33]
The above
conduct, if breached, is known as a breach of the competition rule.
The effect of this notice is to act as a
"cease and desist order" without conferring judicial power. (The conferring of
judicial
power on other than courts not being permitted under the Constitution.)
The maximum penalty for engaging in conduct of the kind described in a
competition notice is $10 million plus $1 million per day
for each day
that the conduct continues whilst the competition notice remains in force.
The effect of all of this is that the ACCC can
now assert its own evidence based on its belief, reverse the onus of proof in
relation
to this evidence, not specify any instances of actual anticompetitive
conduct and seek a penalty of $10 million plus $1 million per
day for
continuing conduct after the issue of the notice. One must be forced to wonder
what has happened to Magna Carta and basic
concepts of legal due process. As we
have previously noted,[34] all of
this is, however, still not enough for the ACCC which is pressing for the power
to compel telecommunications carriers to install
technology which it dictates.
Not surprisingly, all these ACCC powers, actual and potential, give a
very strong basis for regulatory arm twisting. That this has
happened in
relation to Telstra is clear from the discussion following.
An example of regulatory arm twisting is shown by the “commercial
churn” case. The commercial churn case was a complaint
by the ACCC in
relation to the transfer of a telecommunications service to a new
provider.
Roger Featherston, who acted for Telstra in that case gives the
following history of it:[35]
The subsequent sequence of events was:
At no time was Telstra held to be in breach of the
competition rule. However, the commercial pressure to accede to the ACCC's
demands
was enormous. In the case of Telstra, a breach of a competition notice
that commenced in December 1998 and involved a hearing in
March 2000 with
judgment after that date could have given rise to a maximum penalty in the order
of $500 million. At one stage,
it was even suggested by the ACCC that the
penalty provisions ran in respect of each notice.
Featherston has concluded in relation to the ACCC's arm twisting tactics (my phrasing not
his) in the commercial churn case that:
The ACCC's charter is to regulate the telecommunications industry by
promotion of the ‘long term interests of end users of carriage
services or
of services provided by means of carriage
services’.[36] In assessing
the extent to which any particular thing is likely to result in the achievement
of this objective the ACCC must have
regard, amongst other things, to the
technology that is in use or available, whether costs are reasonable and the
effect or effects
which supplying or charging for services would have on the
operation or performance of telecommunications networks. The ACCC has
also to
take into account the legitimate commercial interests of the supplier of
services and any incentives for investment in the
infrastructure by which
services are supplied.
The regulatory approach has been for the ACCC to
impose on Telstra a costing model it describes under the acronym of TSLRIC
–
Total Service Long Run Incremental Cost. Costing on this basis is
difficult to apply as it requires assessment on a hypothetical
forward looking
basis. It also requires an assessment of a hypothetical world efficient network
which, for a number of reasons,
Telstra does not have. Telstra argues that
costing should be based on the network and facilities which Telstra does, in
fact, have.
The different assumptions and methodologies can produce very
different results. In many cases, the ACCC’s preliminary figures
are only
about half of Telstra’s costs as calculated by Telstra.
The ACCC's
media release of 27 April 2000 announcing its draft report rejecting
Telstra’s proposed charges to competitors using
its fixed line telephone
network was headed ‘$250 MILLION WIN FOR TELECOMMUNICATIONS
CUSTOMERS’. Of course, the draft
report does not finally determine the
issue[37] though one would be
inclined to believe from the Media Release headline that it did. The ACCC said
that Telstra calculated its costs
on a basis which would have placed it at the
high end of international charges. The ACCC on the other hand calculated
Telstra's
costs on a TSLRIC basis which would allow Telstra’s costs at the
bottom of the international range. The ACCC urged Telstra
seriously to consider
giving an undertaking in line with its assessment.
Who is right depends no
doubt on whether the ACCC’s hypothetical world most efficient model for
cost calculation is sustainable
or whether Telstra’s view that costs
should be calculated on the efficient use of actual resources wins the day. The
regulatory
legislation, however, ensures that the ACCC wins the debate for a
considerable period of time, even if not
finally.[38]
Some of the
issues which arise from the imposition of a TSLRIC formula on Telstra
are:
Telecommunications regulation has led to investors making
decisions on inadequate information as to what will actually occur. The
government has buck passed to a regulatory authority decisions which it should
have made itself. The telecommunications regulatory
arrangements thus impinge
upon investment decision making in a manner which is quite inconsistent with the
principles of free trade
choice, these principles demanding that the maximum
information should be available in order that informed decisions can be taken.
As part of the State/Federal Competition Principles Agreement signed on
11 April 1995, the Commonwealth and the States are:
| • | to establish independent prices oversight of government business enterprises; |
| • | to establish a competitive neutrality policy to eliminate resource allocation distortions arising out of the public ownership of entities engaged in significant business activities. The competitive neutrality principle should permit freer trade by permitting parties to compete on a “level playing field” undistorted by the advantages held by government businesses because of their public ownership (such as tax exemptions, debt guarantees and favourable legislative treatment); |
| • | to remove responsibility for any industry regulatory functions from public monopolies when introducing competition in any industry which has traditionally been supplied by a public monopoly. |
This is commendable. It promotes freer trade by
ensuring that a monopoly entity cannot enjoy a regulatory advantage over its
rivals;
| • | to act on the guiding principle that legislation should not be enacted which restricts competition unless it can be demonstrated that: |
| • | the benefits to the community as a whole outweigh the costs; and |
| • | the objects of the legislation can only be achieved by restricting competition; |
Clearly this is
a major step in implementing freer trade and is to be commended for this
reason;
| • | to review existing legislation in light of the above principles. |
This, too, is a major step
in implementing freer trade;
| • | the Commonwealth is to put forward legislation providing access to infrastructure activities which are of national significance, are necessary to permit effective competition in a downstream or upstream market and cannot economically be feasibly duplicated.[42] State access regimes may also be established provided they conform with akin laid down principles; |
| • | each State agrees to apply the principles of the agreement to local government. |
One can but
applaud the principles of this agreement. Clearly the agreement opens up
significant areas to freer trade and many prior
regulatory shackles will
disappear because of it.
Competition is the antithesis of regulation. We need the Trade
Practices Act to ensure that free trade eventuates in fact and that trade
freedom is not subverted by private regulators. The competition provisions
of
the Trade Practices Act have, by and large, served Australia well in this
regard.
Government regulation of trading activities (in the sense used in
this paper of “licensing”, “certifying”,
“making
orders”, “approving” or “directing”) is, however,
something which has to be kept to a
minimum for three reasons. These are that
it necessarily inhibits freedom of trade and the benefits which freedom of
individual
decision making brings; that excessive regulation leads to the
outweighing of the governmental decision making apparatus to cope
and to only a
small number of regulatory decisions being, therefore, made on the basis of
careful and well considered judgments;
and that there can be a huge cost to
business itself in it having to make continuous submissions to government for
permission to
take certain action. There is, as we have seen in the case of
telecommunications legislation, also the real risk that regulatory
statutes will
be cast in imperious terms which infringe our societal views of justice and a
“fair go”.
In Australia, the record on government regulation
is a checkered one depending upon whether we look at the deregulation of
industry
under the Competition Principles Agreement entered into between
all Australian governments; whether we are looking at the regulation of
enterprises which have been deregulated
or whether we are looking at the Access
Regime under Pt IIIA of the Trade Practices Act.
Undoubtedly the
Competition Principles Agreement will result in much trade formerly the
province only of government, and administered by those untouched by the forces
of competition
law, becoming far freer. This demonstrates a philosophy of free
trade implementation which is to be commended.
The situation has,
however, been different when some government enterprises have been floated. The
example of Telstra shows that
regulatory decisions which should have been made
prior to its float have not been so made. Investors, therefore, have been faced
with de facto retrospective decisions which vitally affect their returns.
Telstra also illustrates the fact that a good deal of
regulation involves
“arm twisting” when regulators are given imperious powers. Further,
it must be a matter of concern
that the ACCC may well have made decisions in
relation to telecommunications legislation wearing its consumer hat rather than
a hat
balancing all interests.
The Pt IIIA Access Regime has many
problems as a legislative scheme aimed at giving access to essential services
and, by doing so,
encouraging competition. This regime is highly inefficient
and it lacks fundamental price certainty for those wishing to engage
in building
facilities of national importance.
The saving grace for both Pt IIIA and
telecommunications specific regulation is that both are currently being
reviewed.
When regulation is in place, the best guarantee of free trade
is fairly administered trade. At least in the case of Telstra, this
does not
appear to have occurred. We should learn from telecommunications regulation
that legislation in imperious terms is to be
deplored. There is a strong case
for changing the more draconian parts of the telecommunications legislation. At
the very least,
it is to be hoped that such regulatory provisions will not be
repeated.
Much regulation is not fully evaluated prior to being enacted. There is
much to be said either for legislation or a code of practice
to be instituted
which would require detailed and public consideration of important regulatory
issues as a pre-requisite to the establishment
of any regulatory regime. This
consideration should cover wider aspects of any proposed regulation in addition
to an evaluation
of the initial question of whether the government should
regulate at all. I have previously set out some of the considerations which
might be included in such legislation or code of
practice.[43] Both the Access
Regime and telecommunications regulation would, I believe, have been much fairer
and more acceptable if consideration
had been specifically given to “non
economic” factors such as:
| • | whether there was a need for an imperious regulatory charter; |
| • | whether more certainty could have been provided in the regulatory regime – in particular, in relation to pricing principles; |
| • | what provisions should there have been for representation prior to the issue of notices; |
| • | whether reasons should have been publicly available not only for final decisions but also for decisions made to issue notices; |
| • | the role of the ACCC – in particular, whether the ACCC’s role is appropriate in relation to telecommunications regulation. Might it not have been more appropriate to establish an independent adjudication and arbitration body, which body could make decisions without also having policy roles to fulfil? |
It
follows from what I have said that no two industries will be the same. This
makes one doubt the wisdom of general regulation by
one body. There is a good
case for believing that industry specific regulation is more effective and
efficient regulation for this
reason.
Having said the above, both the
Access Regime and the telecommunications regulation regime do have inbuilt
external review procedures.
Perhaps these reviews will ameliorate some of the
matters which are presently of concern.
Free trade and competition concepts are frequently misunderstood and
misrepresented. It is common to hear free trade expressed in
terms that
indicate everyone is a winner. But, of course, this is not correct. Free trade
means that competition forces some enterprises
to close. Employees are laid off
and regional areas may become economically stagnant if this occurs. There will,
of course, be
positive effects – probably in the form of cheaper products.
But these are often slow in eventuating and not recognised even
when they occur.
To government, the closure of a factory and the unemployment of a large work
force in a local area is an immediate
political problem. It is also an
immediate economic problem. For this reason, many find detailed regulation and
industry subsidy
and protection to be the preferable path notwithstanding the
inefficiencies which such regulation notoriously produces.
There are a
number of lessons to be learnt from freeing up trade. Some of these
are:
| • | there will be gains and losses in income by virtue of competitive pressures. Everyone will not be a winner; |
| • | gains and losses will be spread over time. Some will lose initially but be better off in the long run. Some will suffer loss for the rest of their lives – for example, the middle aged unskilled worker who is laid off and faces little prospect of re-employment; |
| • | frequently losses will precede gains. Immediate losses are certainly far more observable than long term gains; |
| • | losers are usually easier to identify than winners. |
It is, therefore, perhaps strange that
the general consensus seems to be that we win by having a free trade economy.
However, I,
for one, believe that competition is a winning policy and that it,
overall, brings about a far better result than any regulatory
alternative.[44] What we
must look at is the net effect. Overall, I believe it is clearly demonstrated
that competitive economies perform better
than regulated ones. Even if this
were not the case I would join American jurist Oliver Wendall Holmes in
proclaiming that ‘free
competition is worth more to society than it
costs’.[45]
There are two fundamental limitations on competition policy which seem to
be increasingly unrecognised.
One of these is for government to consider
competition policy as applicable in areas where it is not. Competition works
only in relation
to commercially traded goods and services. It is, in my view,
a great mistake to believe that it can ever work in areas such as
public health
and public education. No doubt we all want more efficiency in these areas. But
it is a mistake to think that competition
principles will necessarily achieve
this result. Neither public health nor public education are commercially traded
goods or services.
The second is for government to “leave it all to
the market to decide”. The market is an efficient and ruthless allocator
of resources. But Adam Smith, the Bible, Koran and “Confucius Says”
of supply and demand theory noted that whilst mechanisation
of pin factories
through competitive forces may produce more pins, society is incomplete if it
does not turn its attention to the
plight of those made redundant by pin making
machines.
A free enterprise “pro-competition policy” does not
make governmental policies any easier. Though the economy as a whole
may be
better off with such a policy, free enterprise leaves in its tracks a variety of
hardships which must be ameliorated if we
are to have a society which is not
only efficient but which is also caring and kind. We need not only competition
policies but also
policies to soften the hardships which competition can cause.
Both are necessary if we are to function properly as a community worth
living
in.
A POSSIBLE CLASSIFICATION OF RESTRICTIVE AGREEMENTS ENTERED INTO BETWEEN COMPETITORS
|
|
Basis of Classification
|
|
Examples of Classification
|
|
|
|
|
|
|
A.
|
Classification of Restraint by OBJECT of Restraint
|
A1. Restraints on Uses of Economic Resources
A1.1 Minimum Price Agreements
|
|
|
|
|
A1.2
|
Market Division Agreements
|
|
|
|
A1.3
|
Restraints on Quantities Produced (Quota Agreements)
|
|
|
|
A1.4
|
Obligations to Supply Data (Information
Agreements)[47]
|
|
|
|
|
|
|
|
|
A2. Restraints on Entrants and Dealing
|
|
|
|
|
A2.1
|
Fixed Distribution Lists
|
|
|
|
A2.2
|
“Black Lists”
|
|
|
|
A2.3
|
Collective Boycott
|
|
|
|
A2.4
|
Mutual dealing between groups with members of other groups to the exclusion
of non-members of other groups (Reciprocal Group Trading
Agreements)
|
|
|
|||
|
B.
|
Classification of Restraint by TYPE of Agreement
|
B1
B2
|
The Unwritten Agreement
The Written Agreement without sanctions (moral sanction only)
|
|
|
|
B3
|
The Written Agreement with sanctions
|
|
|
|
B4
|
Trade Association “recommendation” arrangements (may be either
with or without sanctions though generally there is a strong
moral
sanction)
|
|
|
|||
|
C.
|
Classification of Restraint by STRUCTURAL METHOD OF
ACHIEVEMENT
|
C1
C2
C3
|
The casual meeting
The cartel
The Trade Association (which may or may not be incorporated –
probably traditionally more usually not so but this has changed
markedly in
recent times)
|
|
|
|
C4
|
The Incorporated entity (which may or may not be a Trade Association)
|
|
|
|||
|
D.
|
Classification of Restraints by METHOD OF ENFORCEMENT
|
D1
|
Agreement providing for methods of detection and informing
|
|
|
|
D2
|
Trade “courts”
|
|
|
|
D3
|
Fines
|
|
|
|
D4
|
Expulsion from the Trading Group
|
|
|
|
D5
|
Collective refusals to deal
|
|
|
|
D6
|
Restitution of surplus profits to a cental pool
|
[**] Dr Pengilley is Professor of
Commercial Law at the University of Newcastle and Special Counsel to Deacons
Lawyers, Sydney. He was
formerly a Commissioner of the Australian Trade
Practices Commission.
[1] For
example, in Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary
Company Limited (1989) ATPR 40 – 925, the High Court
held that BHP had taken advantage of its market power, and breached s 46 of the
Trade Practices Act, by refusing to supply to Queensland Wire at other
than a ‘reasonable price’. Necessarily it follows that the court
must believe that it can determine what constitutes a ‘reasonable
price’ yet this must necessarily involve an evaluation
of cost, supply and
demand factors specific to individual cases which decisions are of no general
precedent value. The court system
in these circumstances becomes, in my view, a
regulatory body. Price setting is inherently regulatory as this concept is
understood
in this paper. Any decision, whether given by a court or otherwise,
which contributes to this result is also a regulatory
one.
[2] This point has been put
in many ways. Perhaps it is no better put than by a submission, now many years
ago, of the Canadian Manufacturers’
Association when urging strengthening
of the Canadian Combines Act. The submission stated:
‘The
members of this Association have adhered to the belief that a system of economic
enterprise that is free, private and individualistic
is the foundation of our
past achievements, our present high standard of living and economic prosperity
and the best hope for rapid
future development. This system it is recognised,
may be endangered either by undue governmental or undue industrial control. The
operator of an individual firm may have his freedom of choice as to what goods
he will make, what technique of production he will
use, what prices he will
charge and what areas he will sell in, taken away from him just as effectively
by an industrial combine
or monopoly as by government edict’. [Submission
of the Canadian Manufacturers’ Association to a Government Committee
to
study the Combines Legislation in Canada (cited from the 1952 Report of the
Committee, 22).]
[3] For example,
the Independent Pricing and Regulatory Tribunal of New South Wales; the Office
of the Regulator-General of Victoria;
the Queensland Competition Authority;
the South Australian Independent Industry Regulator; the South Australian
Independent Pricing
and Access Regulator; the Tasmanian Government Prices
Oversight Commission; the Office of the Tasmanian Electricity Regulator;
the
Western Australian Independent Gas Pipelines Access Regulator; the Western
Australian Office of Water Regulator; the A.C.T.
Independent Pricing and
Regulatory Commission and the Northern Territory Utilities Commission. For a
note on these bodies and their
roles see Frank Zumbo, ‘Administration and
National Competition Policy’ (2000) 8 Trade Practices Law Journal
175.
[4] In much of
Australia’s empowered regulatory activity, it is a major problem to
ascertain who is, in fact, the relevant regulator
and who is politically
accountable for that regulator. Much of the administration of our competition
law, for example, relies upon
interdepartmental arrangements which, though not
secret, are not widely publicised and are often vaguely worded. Much of the Act
is administered by “the Treasury”. Within this Department, however,
political accountability for Treasury administration
is divided amongst the
Treasurer, the Minister for Financial Services and Regulation and the Assistant
Treasurer. Country of Origin
matters are administered by the Minister for
Industry, Science and Resources and the Parliamentary Secretary to that Minister
but
the Minister for Health and Aged Care also has a role as Minister
responsible for food labelling. Part X of the Trade Practices Act is
administered by the Minister for Transport. Telecommunications is administered
by the Minister for Communications, Information,
Technology and the Arts. The
Minister for Small Business and Industrial Relations has a pivotal role in
relation to s 45D of the
Trade Practices Act covering secondary boycotts
and in relation to the promulgation of mandatory and voluntary codes. All of
these divergent politicians
have a role in administering but one Act of
Parliament. Little wonder, therefore, that one of the writer’s queries on
country
of origin laws could not find a political home and provided only
material for inter-Ministerial ping pong, no-one wanting to answer
the query and
forwarding it to another allegedly responsible department. [See W J Pengilley,
‘What is happening about that
ACCC Misleading Country of Origin
Guideline?’ (2000) 8 Competition and Consumer Law Journal 69]. At
the regulatory level, the ACCC and the National Competition Council are the
major players. In relation to access to services,
there are a variety of State
Access regimes accountable to State Ministers. The ACCC itself is a significant
regulator in relation
to the Broadcasting Services Act 1992, the
Moomba-Sydney Pipeline System Sale Act 1994 and the Australian Postal
Corporation Act 1989. There are interconnecting pieces of legislation,
State and Federal, which relate to the regulation of electricity under the
National Electricity Code, gas under the National Gas Access Code
and Airports under the Airports Act. All of these ultimately find their
way to the ACCC as regulator under Pt IIIA of the Trade Practices Act.
The ACCC also approves trade mark certifications under the Trade Marks Act
1995. [See generally W J Pengilley, ‘Who administers our competition
and consumer protection laws?’ (1998) 6 Competition and Consumer Law
Journal 258.] Various industry codes can now also be declared, whether
mandatory or voluntary codes, under Pt IVB of the Trade Practices Act
with resulting consequences in terms of Pt IVA of the Act. All Australian
franchising activity is now regulated under a declared
mandatory code.
We
may soon desperately need a CCH Reporter devoted entirely to finding out, and
indexing, who is responsible for what in the competition
and regulatory fields.
There is a major business opportunity for a publisher to establish the
Competition and Regulatory Bodies Finding Reporter.
[5] Now merged with the
Australian Competition and Consumer
Commission.
[6] Prices
Surveillance Authority, ‘Inquiry into Aeronautical and Non Aeronautical
Charges of the Federal Airports Corporation’
(Matter PI/92/7, 17 August
1993).
[7] ACCC Submission to the
Productivity Commission Review of the Prices Surveillance Act (June 2000) Par
4.4. This view was not accepted by the Productivity Commission and seems to be
based entirely upon price increases in tug services in
Port Jackson in February
1998 contrary to the ACCC’s recommendation. The point in the text,
however, is still validly made,
ie that regulators will seek to expand their
regulatory control in order to bring those who do not agree with them within
their regulatory
net.
[8] Ibid,
Par 4.2.
[9] ACCC Submission to
the Productivity Commission Review of Telecommunications Specific Competition
Regulation (August 2000) Par
5.8.
[10] In 1988, a new
telecommunications policy was introduced. A regulator, AUSTEL, was to be
established. One of its functions was
to be to protect the then Telecom
monopoly. “Bundling” of phone and fax services was not to be
permitted. Third party voice switched
traffic was not permitted to be carried
on satellite. One avowed policy objective was to prevent the diversion of
traffic from the
public network to private operators. The writer made the
following observations on this policy which policy was then regarded as
very
forward thinking:
‘Telecom has, over time, been highly successful in
fending off competitive influences which would weaken its market position.
Thus, Telecom initially objected to a domestic communications satellite. When it
was realised that this could not be stopped, it
changed its strategy and argued,
with partial success, that the satellite should be placed in its hands. Much of
the competitive
threat of the satellite was neutralised when the Satellite
Communications Act specifically excluded AUSSAT from providing public
switched telephone and data services in competition with Telecom. [See
‘Battle
of Satellite Waves’, National Times (Sydney), 14-20
March 1986; Australian Financial Review (Sydney), 4 November 1987]. This
restriction is to continue. [Senator Gareth Evans, Minister of Transport &
Communications,
Ministerial Statement on Australian Telecommunications
Services, AGPS, Canberra (1988) 77-78)]. With ever multiplying
technological changes, there will undoubtedly be other areas over which the
regulatory net will soon be spread. It has already been foreshadowed that the
reservation of basic switched voice services will
necessarily entail a
restriction on the supply by entities other than Telecom and OTC of services
which ‘bundle’ a switched
voice connection with any other service or
set of services. [Evans, Ministerial Statement (above) par 3.58 p46].
Further, the Government intends to regulate the provisions of services which
are, or may become, direct substitutes
for switched voice services. [Evans,
Ministerial Statement (above) par 3.58 p46]. All of this is justified by
the explanation that such restrictions ‘will prevent undue diversion of
traffic from the public network to private operators’. [Evans,
Ministerial Statement (above) par.3.61 p47].
No doubt regulations
will expand horizontally to prevent people privately utilising alternative
methods of communication as and when
inventive genius creates such methods. We
can expect no less if one of the five major functions of the new
‘independent regulator’,
AUSTEL, is specifically said to be that of
‘protecting’ Telecom’s monopoly. [Evans,
Ministerial Statement (above) par .6.14(b) p126]." (Emphasis
added).
See W J Pengilley, ‘The Exclusion of Competitive
Carriers’ in M Armstrong (ed), Telecommunications Law: Australian
Perspectives (1990) 295.
Such a “forward thinking” policy
of but 12 years ago shows how even recently conceived regulatory policies have
very little
capacity to take into account and foresee technological and market
changes even in the short
term.
[11] See above n
4 for some of
these.
[12] Northern Natural
Gas Co v Federal Trade Commission [1968] USCADC 285; 399 F2d 953 (DC Cir
1968).
[13] In this regard, I
commend the thoughts of Lee Loevinger as follows:
‘At this point in
our social development, bureaucracy is the problem, not the answer. Turning to
bureaucracy as a means of
meeting each social problem is a product of what has
been called ‘the political illusion’ – that there is a
political
solution for everything.
Frequently the establishment of a
bureaucracy is not a method of solving social problems at all, but rather a
method of evading them.
The establishment of an agency with delegated power to
take appropriate action in some problem area to serve the public interest,
or
comply with some other vague standard, is simply a legislative device for
avoiding responsibility – a method of passing
the buck ...
There may
be some political advantage in setting up a bureaucracy to deal with troublesome
problems, leaving it without any clear
policy guides, and then attacking it for
inaction when it fails to act or for improper action when it acts in a manner
that fails
to satisfy a majority of the public or members of the legislative
body. However, this is one of the worst methods of dealing with
social problems
...
By erecting an institutional façade around the problem areas, it
tends to hide the problems from the view and prevent them
from receiving the
attention and discussion that is essential to the formulation of effective and
generally acceptable solutions’.
Lee Loevinger, ‘The Sociology
of Bureaucracy’ (1968) The Business Lawyer 15-17.
[14] L Noah,
‘Administrative Arm Twisting in the Shadow of Confessional Delegations of
Authority’ (1997) Wisconsin Law Review 73.
[15] Royal Commissions and court
cases are replete with instances of private regulation. Some private cartels
have withdrawn supplies
from a Canberra liquor retailer who purchased supplies
from a non-cartel member at cheaper prices (A.G. v Dalgety Trading Co. Pty
Ltd [1966] Argus L.R. 194). Private regulatory groups have harassed traders
at trade fairs in an attempt to prevent price discounting. (See Trade Practices
Commission, Third Annual Report (Year Ended 30 June 1977) par. 2.26. The
Caravan Trades and Industries Association of South Australia (CTIA) prohibited
advertising
of discounts at its annual shows. One dealer did so advertise and
was subjected to various actions including disconnection of the
electric power
to his stand at the Annual Show and expulsion from the Association.) Attempts
have been made to expel a person from
a trade association for price cutting thus
denying such person access to market warehousing facilities and therefore taking
away
his ability to trade as a fruit and vegetable merchant. (Trade
Practices Commission v Bryant [1978] ATPR 40-075. A plea
of guilty was entered to a breach of s 45 of the Trade Practices Act.
Actual expulsion from the Association did not, in fact, occur for reasons, one
suspects, directly related to the activities of
the Trade Practices Commission
in bringing the case. A total penalty of $20,000 was imposed for breach of the
Trade Practices Act.) A trade association has successfully prevented a
Dutch immigrant from selling his manufactured furniture. The immigrant was not
a member of the Association. He was not eligible for Association membership
because membership required Australian residency for
ten years. Without
Association membership, it was impossible to market the furniture he produced.
(See Adelaide Advertiser, 30 May 1963. See also the G L Wood Memorial
Lecture delivered by Sir Garfield Barwick at the University of Melbourne, 16
August
1963 on the subject ‘Trade Practices in a Developing Economy’
(reprinted by Commonwealth Government Printer)). The case
was a sad one in that
it came to notice because the immigrant set fire to his furniture store and was
subsequently charged in respect
of this offence. Mr Justice Travers of the
South Australian Supreme Court commented on the harshness of the
Association’s
rules noting, by way of contrast, that ‘a migrant is
eligible to become Prime Minister the day after he is naturalised’.
Private licensing of business can be the direct object, and stated as such, of
some Trade Associations. The Sports Goods Federal
of Tasmania, for example,
previously had exclusive marketing rights for members in respect of most
sporting products. It had the
power to refuse association membership to any
person wishing to enter this aspect of the retail industry if ‘the area
where
he trades or intends to trade is adequately catered for’ (Report
of the Royal Commissioner on Prices and Restrictive Trade Practices in Tasmania
(1965) 11).
[16] In ACCC
v Mobil Oil Australia Ltd (1997) ATPR 41-568 alleging price
fixing collusion between two oil companies. The ACCC was unable in its
pleadings to identify any specific instance
of collusion to back up its
pleadings. The court held that the ACCC had relied upon speculative and
tendentious theorising and the
case was struck out as being an abuse of process
of the Court.
In ACCC v Amcor Printing Papers Group Ltd [2000] FCA 17; (2000)
ATPR 41-749 the ACCC alleged collusion between two paper
recycling companies. The Court dismissed the ACCC’s case without
requiring the
defendant companies to give
evidence.
[17] [1989] HCA 6; (1989)
ATPR 40-925. As to the “regulatory” nature of this
decision, see above n
1.
[18]
See above n 1. For further elaboration of
the writer’s views see W J Pengilley, ‘Misuse of Market Power:
Present Difficulties –
Future Problems’ (1994) 2 Trade Practices
Law Journal 27; W J Pengilley, ‘Misuse of Market Power: The
Unbearable Uncertainties facing Australian Management’ (2000) 8 Trade
Practices Law Journal 56. For brief comments on the
“regulatory” nature of this decision see above n
1.
[19]
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001)
ATPR 41-805. For the writer’s view of the impact of this
decision see W J Pengilley, ‘Misuse of Market Power: The Courts speak on
distribution arrangements and Predatory Pricing’ (Paper given to the
Australian Competition and Consumer Law Conference, 23
June 2001 –
published since writing this article under the title “Misuse of Market
Power – Australian Post Melway
and Boral” 9 CCLJ 201-240) and
W J Pengilley, ‘The Impact of Melway on Distribution Arrangements’
(Paper given at IIR Conference, 25-27 June
2001).
[20] In relation to
1997-98 and 1998-99 figures, see ACCC Merger Assessment: Informal
Notification and Timing Issues (December 1999) 67. In relation to 1999-2000
figures see ACCC Annual Report 1999-2000 40. It must be expected that the ACCC
will
receive many more merger applications in future than previously in light of
the 2001 legislative extension of merger law to cover
regional
markets.
[21] For a good
encapsulation of these views see FEATURE, The Australian Financial Review
(Sydney), 13 April 2000. See also A Fels, ‘Mergers and Market
Power’ (A speech to the Australian-Israel Chamber of Commerce,
15 March
2001) (Published in the ACCC Journal Issue 33 (June
2001)).
[22] See above Pt
I.
[23] See above Pt IIIA of
text.
[24] See above Pt I and Pt
IIIF.
[25] At the time of debate
on the Access Regime, various suggestions were made that pricing guidelines
should be laid down generally
or in relation to certain industries. Professor
Fels, ACCC Chairman, argued that legislative pricing guidelines were ‘not
appropriate’ as this might deny flexibility to the ACCC in relation to
price determinations in accordance with market standards.
[See The Australian
Financial Review, 7 April 1995]. This is, in my view, an "appeal to
authority" argument by the regulator claiming that the regulator knows best.
Even worse, it is based on the fact that those constructing facilities should
not be entitled to know the basis on which their investment
return will be
calculated and upon a belief that this should be able to be retrospectively and
arbitrarily imposed. It is apparent
that even generally worded legislative
pricing guidelines are of value, can give some certainty and can prevent
regulators acting
in a totally discretionary manner (or as the ACCC Chairman
puts it, ‘flexibly’). (See, for example, above n
41 and related text re US telecommunications
access pricing formula.)
Recognising the problems involved in there being no
method, at the time of constructing a facility, of ascertaining the price of
access
to such facility, the Productivity Commission, in its Draft Report
reviewing the operation of Pt IIIA concluded that the regime should
specify that
access prices should:
‘generate revenue across a facility’s
regulated services as a whole that is at least sufficient to meet the efficient
long-run costs of providing access to these services, including a return on
investment commensurate with risks involved’
‘not be so far
above costs as to detract significantly from the efficient use of services and
investment in related markets’
‘encourage multi-part tariffs and
allow price discrimination when it aids efficiency’; and
‘not
allow a vertically integrated access provider to set terms and conditions that
discriminate in favour of its downstream
operations unless the cost of providing
access to other operations is higher’.
Productivity Commission
Review of the National Access Regime Position Paper (March 2001). No
doubt the above terms can be subject to debate. However, in the writer’s
view, this formula inserted in
the Pt IIIA Access Regime would be far superior
to the present Regime which contains no access pricing principles at
all.
[26] See below Pt V
B3(c).
[27] See J Zaverdinos,
‘Certification of the Access Regime for the Tarcoola to Darwin
Railway’ (2000) 8 Trade Practices Law Journal 171.
[28] In this regard, the writer
has noted:
‘Unfortunately, our access regime also has aspects which
have nothing to do with competition law at all.
The sole rationale of our
access regime is that it is something which enhances competition. However, we
have overkilled and the overkill
is a matter of concern. The essential
facilities doctrine in the United States results from the denial of a facility
by one competitor
to another, actual or potential. The Australian access regime
has no such limitations. If a railway company wishes to deny access
to lay
telecommunication wires next to its rail tracks, this is not a competition issue
at all. It is a vendor/purchaser issue -
the railroad company is the vendor of
the access asset and the telecommunications company is its purchaser - and the
access price,
or whether access is granted at all, should be determined by
market bargaining. What is not generally recognised is that the Australian
access regime goes far further than competition law demands and, wrongly, in the
name of competition, opens up considerable areas
for regulation which should not
be under any regulatory regime at all’.
[See W J Pengilley,
‘Comment on PART IIIA: Unleashing a Monster’ in F Hanks and
P Williams (eds), The Twenty Fifth Anniversary of the Trade Practices
Act: A Celebration and Stocktake (Federation Press)
223-234.]
[29] See above Pt
IIG2.
[30] Pt IIIA of the
Trade Practices Act is discussed above in Pt
VB2.
[31] See suggested criteria
above in Pt IIIB.
[32] For a
general coverage of the Trade Practices Act's telecommunications
regulatory provisions the writer commends a paper by Roger Featherston entitled
‘Competition in Telecommunications
: Pt XI B and XI C of the Trade
Practices Act’. This Paper was delivered at a Competition Law and
Regulation Conference conducted
by the Faculty of Law of the University of New
South Wales on 24 – 25 August 2000. The writer relies significantly upon
this
Paper in his comments.
[33]
Section 47(10) of the Trade Practices Act provides that, in assessing
competitive effects in exclusive dealing conduct, one may take into account
‘other conduct of the
same or a similar kind’. There is no
restriction in relation to telecommunications, however, as to what ‘other
conduct’
may be
considered.
[34] ACCC
Submission, above n 9 and related
text.
[35] R Featherston, above
n 32 and comments made during the delivery of the paper there referred
to.
[36] Trade Practices
Act s 152AB setting out the objectives of Pt XIC of the Act.
[37] When a draft determination
is made after an arbitration between parties, it may be in effect for a period
of up to one year. A
draft determination cannot be appealed to the Australian
Competition Tribunal (s 152DO) though a final determination can be so appealed.
The position of Telstra in all of this is somewhat difficult. The Telstra
problem is summarised in the following words:
‘Telstra has again
attacked the telecommunications regulator, the Australian Competition and
Consumer Commission, vowing to
challenge the ACCC’s final decision on fees
for competitors to connect to its network – even though that ruling has
not
been made. Telstra cannot challenge the ACCC’s pricing levels or
methods for determining interconnect rates until the ACCC
makes a final
determination.
At present the ACCC fixes the rate using draft
determinations.
Telstra’s legal and regulatory group managing
director, Mr Bruce Akhurst, said yesterday the ACCC did ‘not take into
account
real world Australian conditions’.
‘The effect of the
ACCC’s use of hypothetical models is that competitors get to use
Telstra’s structure at below
the cost of building and maintaining the
network’, Mr Akhurst said.’
The Australian Financial
Review, 8 September
2000.
[38]
Ibid.
[39]
Ibid.
[40] Ibid. Note also the
view of the Productivity Commission in its Draft Report on Telecommunications
Industry Specific Regulation that it believed that the access prices of PSTN
interconnect charges may have been set too low and various cost components
underestimated
by the ACCC. The Productivity Commission, however, could not be
precise in its conclusion. In any event, regardless of the actuality,
it is
difficult to perceive the ACCC as balancing the scales impartially in
light of Press Releases trumpeting ‘$250 MILLION WIN FOR
TELECOMMUNICATIONS
CONSUMERS’ (See ACCC Press Release, 27 April
2000).
[41] In the United
States, for example, interconnection charges are to be based on ‘the just
and reasonable rate for the interconnection
of facilities and equipment’.
This rate:
‘(A) shall be
(i) based on cost (determined without
reference to a rate of return or other rate based proceeding) of providing the
interconnection
or network element (whichever is applicable); and
(ii) non
discriminatory; and
(B) may include a reasonable profit.’
(s
252(d) Telecommunications Act 1996 (USA)).
The Federal Communications
Commission promulgated various pricing rules, the details of which are not here
important. One of these
rules permits returns calculated on the basis of the
most efficient technology available to the industry regardless of the technology
actually used. The Iowa Utilities Board and others argued that this view was
arbitrary and capricious decision making by the FCC
and contravened the plain
language and purpose of the Act. The 8th Circuit Court of Appeals
upheld the Utilities Board case holding that costs must be based on the access
providers actual network
and not on some hypothetical idealised network (Iowa
Utilities Board v FCC 120 F 3rd 753 (1997); on remand –
case 96-3321 (8th Cir. 18 July 2000)). This decision cannot be
precedent in Australia because there are no legislative pricing guidelines in
the Australian
telecommunications legislation and the issue was determined in
the United States as a matter of statutory interpretation of legislative
guidelines. However, the case does show the treatment of this issue in another
jurisdiction. In an illuminating analysis of the
case Geoff Edwards
concludes:
‘Whilst based on statutory interpretation, it is arguable
that the judgment reflects an underlying
economic concern to emphasise the
importance of recognising and rewarding actual investments in infrastructure.
It is unlikely that
any firm, incumbent or otherwise, can attain the
hypothetical ideal implicit in the current application of ... TSLRIC cost
models.
Given this is so, failing to fully reflect the actual costs of a
network provider’s infrastructure sends a signal that it
is likely to
discourage future investment in such infrastructure. This is a particularly
dangerous signal to send in an industry
as inherently dynamic, and as
fundamental to an economy, as telecommunications.’
G Edwards,
‘Implications for Australian Telecommunications Access Pricing of Iowa
Utilities Board v Federal Communications Commission and United States of
America’ (2000) Competition and Consumer Law Journal 185,
192.
Legislation has now been introduced into Parliament (The Trade
Practices Amendment (Telecommunication) Bill 2001) which requires the
ACCC to
specify pricing principles at the time of, or as soon as practicable after, the
declaration of a telecommunications service.
Given what has occurred in
Australia, this may be one partial solution to the pricing predicament.
Nonetheless, it is hardly long
term guidance to investors and does not overcome
the problem of whether the ACCC can be seen to be acting impartially in carrying
out its price setting functions.
For a suggested access pricing formula in
relation to the Pt IIIA Access Regime see that proposed by the Productivity
Commission in
its Position Paper (above n
25).
[42]
The Commonwealth Access Regime is embodied in Pt IIIA of the Trade Practices
Act, discussed earlier in this Paper see above in Pt
VB2.
[43] See above Pt
IIIB.
[44] Note that in this
Paper I discuss only domestic
policy.
[45] Justice Oliver
Wendall Holmes Jnr in Vegelahn v Guntner 44 NE 1077 (Mass. 1896). In
this regard, note in particular that delegating a problem to a regulator can
mean that the problem never receives appropriate
attention – see
Loevinger, above n
13.
[46]
The above is a possible classification only. Some agreements will have more
than one characteristic. No classification can hope
to be complete in this
area. In the words of Sir (then Mr) Billy Snedden, Restrictive Trade Practices
Arrangements show ‘refinements
which are as exotic as the fire from a cut
diamond. Tailored by master craftsmen to suit their own needs, no greater
labour has
produced such artistry of result’. (Commonwealth,
Parliamentary Debates, House of Representatives, 16 August
1962).
[47] Not all
“Information” agreements breach the Trade Practices Act. For
some relevant principles see American Column & Lumber v U.S. [1921] USSC 203; (1921)
257 U.S. 377; U.S. v American Linseed Oil Co. [1923] USSC 156; (1923) 262 U.S. 371;
Maple Flooring Manufacturers Assocn v U.S. [1925] USSC 164; (1925) 268 U.S. 563; U.S. v
Container Corpn of America [1969] USSC 10; (1968) 393 U.S. 333; Information Circular No.
14 (28 April 1976) issued by Trade Practices Commission.
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