ACCC Annual report 2000-01

ACCC 2000–2001 Annual Report iii

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ACCC 2000–2001 Annual Reportiv

ACCC 2000–2001 Annual Report v

Contents

Glossary and abbreviations x

Review by the Chairman 1

Highlights of the year’s activities 1Enforcement 1Professions 2The New Tax System 2Regulatory activities 2Mergers 3Consumer protection 4Small business 4Adjudication 4International unit 4Summary of financial report 5ACCC staff 5Liaison 5Amendments to the Trade Practices Act 5Outlook 6

Looking forward: future challenges for the Commission 6Globalisation 6New technology and e-commerce 7Liberalisation 7Other forces — regional and rural Australia 7The Commission’s approach 7Proposed changes to the Trade Practices Act 8

ACCC organisation chart 10

1 Overview of the ACCC 11

Legislation 12Trade Practices Act 12Prices Surveillance Act 12Related legislation 12Exceptions under Commonwealth, State andTerritory legislation 12-13

Outputs and performance indicators for 2000-01 14Structure of the Commission 14Social justice 16Other documents 16External scrutiny 16Freedom of information 16

ACCC 2000–2001 Annual Reportvi

2 The New Tax System 17

Year in review 17The Commission’s role 18Promoting compliance 19

The guidelines 19Communications strategy 19Media activities 20Publications 20Electronic information 21Working with consumers 23Working with business 24Public compliance commitments 25

Price monitoring 27The general survey 27Monthly supermarket survey 29Consumer price index 29General impact of the New Tax System on prices 29Industry-specific monitoring 29

Enforcement 30Court cases and undertakings 30

3 Achieving compliance 35

Chapter contents 35Restrictive trade practices 37

Court actions 38Consumer protection 41

Country of origin 42Frequent flyer inquiry 43Education, liaison and advice 43Industry codes 44Compliance programs 44Court actions and undertakings 45Administrative resolutions 49

Product safety 49Proposed new standards 49Amended existing standard 50Bans 50Information and liaison 50International activities 51Product safety surveys 51Court actions and undertakings 52

The professions 53Liaison 54Court actions and undertakings 55

E-commerce 57Electronic complaints 57International Internet Sweep Day 57Domain name registration 57Internet access services 58International liaison 58Domestic liaison 58Forensic investigations 58Competition and B2B activities 59

ACCC 2000–2001 Annual Report vii

Court actions and undertakings 59Small business 61

Information programs 61Cooperation with other agencies and associations 62Rural and regional outreach program 62Industry codes of conduct 63Court actions 63

International activities 64Formal cooperation agreements 64Cooperation in enforcement matters 64International forums 65Technical assistance 65

4 Mergers 67

Why is the Commission concerned about mergers? 67National champions argument 68Year in review 68

Key statistics 68International liaison 71Future outlook and priority areas 71Section 87B undertakings 71Major merger matters assessed 72

5 Assessing the public benefit 79

Authorisation 80Notifications 80Certification trade marks 80Year in review 81

Rural and regional 81Health and the professions 82RBA/ACCC joint study 82Review of past authorisations 82Australian Competition Tribunal decision — Australasian Performing Rights Association Limited 83Major authorisations finalised during 2000–01 83

6 Regulatory affairs 87

Contents 87Overview 88Electricity 89

Authorisations 89Year in review 93

Gas 98Access arrangements 98Liaison activity 102

Telecommunications 104Telecommunications competitive safeguards — Part XIB 104Tariff filings 104Tariff filing directions under — Division 4 104Tariff filing by Telstra under Division 5 104

ACCC 2000–2001 Annual Reportviii

Record keeping rules 105Record keeping rules — ULLS 105Major anti-competitive conduct investigations 105Arbitrations 110Exemption applications 112Local carriage service exemption applications 112A facilities audit of telecommunications infrastructure 112Mobile number portability 112Pricing principles 113Local number portability 113Portability of national and premium rate service numbers 113Transmission inquiry 113Telstra carrier charges — price control arrangements 113Price control review — other 114Telecommunications Industry Codes 114

Air transport 115Sydney airport 115Inquiry into price regulation of airports 116Price cap 117Airport taxi charges 118Security charges 118New investment 118Regulatory reports 119Airservices Australia 120

Rail 120The rail reform process 120

Utility Regulators’ Forum 121Prices monitoring 122

Review of the Prices Surveillance Act 1983 122Parallel imports of books and computer software 123Petroleum products 123Milk monitoring 125

Waterfront 126Part X 126Container stevedore monitoring 127Prices oversight of harbour towage 128

International forums 128OECD 128APEC 128

7 Corporate governance and management 129

Introduction 129Corporate governance 130

Decision-making structure 130Output pricing and funding review 130Senior management conference 131Financial management 131

Tax reform price monitoring 131Legal services 131Airport regulation 131Additional functions and powers under theTelecommunications Legislation Amendment Act 1999 131Revenue 132

ACCC 2000–2001 Annual Report ix

People management 132Staffing levels 132Training and development 132Graduate program 133International staff development programs 133Workplace relations 134Workplace diversity 134Occupational health and safety 136

The legal group 136Information and communications technology and service 136

Information technology and telecommunications 136Internet communications 137Database development 137Videoconference equipment 137

Information management and services 137Establishment of Information Services Section 137Redevelopment of the Internet and Intranet 138Records management 138Public registers 138Library 138Publications 139

General 139Service charter 139Conflict of interest 139Commonwealth Disability Strategy 140

Consultancy services, competitive tendering and contracting 140Consultancy services 140Advertising and market research — CommonwealthElectoral Act 1918 140

Office accommodation 141

Financial statements 145

Appendixes

1 Amendments and regulations 1792 Inquiries and complaints 1803 Exercise of information powers 1814 Statement under s. 8 Freedom of Information Act 1825 Commissioners’ biographies 1856 ACCC decision-making structure 1957 Publications 196

ACCC contacts and offices 200

Index 203

AAT Administrative Appeals Tribunal

ABDP Amadeus Basin to Darwin Pipeline

ACA Australian Consumers Association

ACCC Australian Competition and Consumer Commission

ADFF Australian Dairy Farmers’ Federation

AFJA Australian Fruit Juice Association

AHC Australian Hospital Care

A New Tax System change

A New Tax System change isdefined by the legislation as theending of Wholesale Sales Tax,the introduction of the GST, andchanges to other taxes, excises,subsidies and rebates prescribed(and to be prescribed) inregulations.

ANZFA Australian and New ZealandFood Authority

APCA Australian Payments Clearing Association

APEC Asia-Pacific Economic Cooperation

APRA Australian Performing Rights Association Limited

APRA Australian Prudential Regulation Authority

ARTC Australian Rail Track Corporation

ASIC Australian Securities and Investment Commission

ATO Australian Tax Office

ATSI Aboriginal and Torres Strait Islander

AuDA au Domain Administration

ACCC 2000–2001 Annual Reportx

Glossary andAbbreviations

ACCC 2000–2001 Annual Report xi

BML Boral Masonry Limited

B2B Business to business

B2C Business to consumer

CASE Consolidated Application Server Environment

CECS Consumer ElectronicClearing System

CHH Carter Holt Harvey

Commission, the

The Australian Competition andConsumer Commission

CPI Consumer Price Index

CSBP Cuming Smith British Petroleum

CTDA Commerce (Trade Descriptions) Act

CTMs Certification trade marks

CWO Cable & Wireless Optus

CWO: Cable & Wireless Optus Limited:C & M Consumer and Multimedia

CWO: Cable & Wireless Optus Limited: D & B Data and Business

Diesel Fuel Rebate Scheme

An existing scheme whereby partof the Commonwealth componentof customs and excise duty ispaid on diesel for certain eligibleoff-road uses. Under the NewTax System this scheme will beextended to cover 100 per centof the Commonwealth customsor excise duty paid.

DISR Department of Industry Science & Resources

Dual ticketing Where two prices are displayed on the good (usually a pre 1 July 2000 price and a price from1 July 2000)

EAPL East Australian Pipeline Ltd

EPO Electricity Pricing Order(South Australia)

EU European Union

FID Financial institutions duty

FRC Full retail competition or

Full retail contestability

FTC Federal Trade Commission

GSM Global system for mobile communications

GST The GST is a broad based indirect tax, introduced by the Government to replace the Wholesale Sales Tax and a number of State indirect taxes. Generally, the GST taxes the consumption of most goods, services or anything else in Australia, including things that areimported.

Guidelines, the

The price exploitation guidelines

HOCOLEA

Heads of Commonwealthoperations law enforcementagencies

IAMA International Food and Agribusiness Management Association

IATA International Air Transport Association

IFSA Investment and Financial Services Association

IIP International Internship Program

IMSN International Marketing Supervision Network

Input tax credits

A credit received by a supplier(who is registered for GSTpurposes) for GST paid oncreditable acquisitions.

IRPC Inter-regional Planning Committee

MIA Medical Imaging Australasia

MNL Mayne Nickless Limited

MSORC Market System OperationsReview Committee

MSP Moomba to Sydney Pipeline

NAB National Australia Bank

NCC National Competition Council

NECA National Electricity Code Administrator

NEM National electricity market

NESB Non-English-speaking background

ACCC 2000–2001 Annual Reportxii

Net dollar margin

The price of a good or serviceless cost of goods sold/servicessupplied, operating costs andselling costs.

Net dollar margin rule

Net dollar margins should notincrease as a result of the NewTax System changes alone.Changes in volumes are not takeninto account when calculating thenet dollar margin.

NGPAC Natural Gas Pipelines Advisory Committee

NOIE National Office for the Information Economies

NZCC New Zealand Commerce Commission

OECD Organisation for Economic Cooperation and Development

OFTEL UK Office of Telecommunications

PASA projected assessment of systems adequacy

PCC public compliance commitment

PDL Pacific Dunlop Limited

PKI price key indicators

PML Pocket Money Limited

Price exploitation

An offence defined in s. 75AU ofthe Trade Practices Act

Price exploitation guidelines

The guidelines required to beprepared by the ACCC undersubs. 75AV(1) of the TradePractices Act.

PSA Prices Surveillance Act 1983

PSTN public switched telecommunications network

QNI Queensland–New South Wales Interconnector

RACS Royal Australian College of Surgeons

RBA Reserve Bank of Australia

Rebates Structural discounts often given by suppliers that reduce the cost of the good to retailers as well as the base for calculating Wholesale Sales Tax.

RoE Return of equity

SBAG Small Business Advisory Group

Section 75AW notice

A notice of price exploitationwhich constitutes prima facieevidence in Part VB proceedings.

Section 75 AZ notice

A notice which specifies amaximum price that in the ACCC’sopinion may be charged for aproduct.

SMHEA Snowy Mountains Hydro-Electric Authority

SNK Simply No Knead FranchisingPty Ltd

TCC Trade Competition Commission

TFTC Taiwan Fair Trade Commission

TGA Therapeutic Goods Administration

TGAC Therapeutic Goods Advertising Code

TGACC Therapeutic Goods Advertising Code Council

TNZ Telecom Corporation New Zealand

The Act Trade Practices Act 1974

Transition period

During the New Tax Systemtransition period the Commissionhas oversight of pricing responsesto the New Tax System changes.This transition period began on8 July 1999 and ends on30 June 2002.

Part VB of the Trade PracticesAct will operate during this periodand will run from 8 July 1999 to1 July 2002.

TUOS transmission use of system

VoLL Value of lost load

WACC weighted average cost of capital

WIPO World Intellectual Property Organisation

WST Wholesale Sales Tax

WTO World Trade Organisation

ACCC 2000–2001 Annual Report 1

The welfare of all Australians is greatly enrichedby having a competitive and fair businessenvironment, and appropriate consumerprotection. In our changing world, characterisedby rapid technological change and globalisation,this mandate becomes increasingly challenging.The Australian Competition and ConsumerCommission has sought to meet the challengesin a very demanding year. It has continued itsextra responsibilities surrounding theimplementation of the New Tax System inaddition to its enforcement, regulatory andcompliance activities. The Commission believesit has maintained the high standard expected ofit by business, government and the community.

Highlights of the year’sactivitiesEnforcementThe Commission welcomed several significantcourt judgments, particularly in price fixing,domestic and international cartel activity,unconscionable conduct and the misuse ofmarket power.

In two important cases, which clarified theinterpretation of section 46 of the TradePractices Act, the Federal Court found that bothBoral Ltd and Rural Press had misused theirmarket power in breach of the Act.

The Commission was also successful inproceedings against three multinational vitamincompanies for engaging in price fixing andmarket sharing. Penalties imposed totalled arecord $26 million. The case sent a strongwarning to any businesses proposing similarconduct.

During 2000–01, the Commission was in courtin 85 matters regarding Parts IV, IVA, V and VBof the Trade Practices Act. These included 43

Review by theChairman

ACCC 2000–2001 Annual Report2

new court actions, of which 12 alleged breachesof Parts IV and IVA related to price fixing, resaleprice maintenance, secondary boycotts, themisuse of market power and unconscionableconduct. The remaining 31 relate to breaches ofParts V and VB concerning consumer protectionand price exploitation in respect of the New TaxSystem.

The enforcement section of the Commission hasinvestigated a range of complaints under theindustry-specific competition rule.

The Commission also maintained its educationand information role, reminding the businesscommunity that complying with the law isultimately best for business and consumers.

Professions Some of the additional funding provided in the2001–02 Budget will be used for a dedicatedteam to work on the application of the TradePractices Act to the professions. The unit willdetermine the level of compliance achievedby the various professions since the Act wasextended in the mid-1990s to cover allprofessions. The unit will ensure that theCommission’s approach to the professionsis consistent and coordinated.

This team has completed the Commission’sthird report to the Senate on anti-competitivepractices by health funds in regard to privatehealth insurance.

The New Tax SystemThe Commission’s role was to ensure that thebenefits of the New Tax System were passedon to consumers, and that businesses did notengage in price exploitation or misleading anddeceptive conduct in relation to the NewTax System changes. It also monitored theimplementation of the Commonwealth FuelSales Grant Scheme and the reduction in theCommonwealth excise on petrol, diesel anddraught beer during the year. Over 64 000inquiries were handled, including about 24 000complaints.

The results of the Commission’s price surveysthis year, together with Consumer Price Indexoutcomes, confirm that the tax changes affectedprices mostly in the September 2000 quarter.

Average price changes were within theCommission’s estimates and there was noevidence of significant opportunistic pricing toincrease margins. Although some prices haverisen since the initial impact during theSeptember 2000 quarter, average increases havegenerally been in line with inflation trends thatexisted before the New Tax System.

Average price changes resulting from theNew Tax System were fairly consistent acrossgeographical locations, even though price levelsmay have been different. The results also showedno substantial differences in the price changesbetween the States and Territories, althoughagain prices may have been at different levels.The differences between small and largebusinesses were also insignificant.

After one year of the GST the Commissionfound that most businesses have fully compliedwith its pricing guidelines. Businesses generallyacted correctly in adjusting prices to takeaccount of the tax changes. However, there wereinstances of inappropriate pricing and pricerepresentations. Commission staff investigatedapproximately 6000 matters and took five casesto court this year, resolving a further 31 matterswith court enforceable undertakings.

Regulatory activitiesThe Commission has many roles in theregulation of utilities, including administrationor approval of access arrangements. Thesearrangements are designed to ensure thatowners of essential facilities, such astelecommunications networks, make theirinfrastructure services available to accessseekers. This needs to be on terms thatencourage investment by owners of facilitieswhile allowing the access seekers to compete inindustries upstream and/or downstream of theregulated services.

In addition, long-standing powers to authoriseconduct that would breach the competitionprovisions of the Trade Practices Act haveparticular application in moulding the regulatoryframework — and price monitoring has beensupplemented by the administration of pricecaps to lessen the impact of monopoly power.


The Commission’s regulatory activities havecontinued to grow over the year.

The Commission released five draft accessassessments under the national gas code andapproved the Marsden to Dubbo pipeline.It also completed an assessment of anapplication for GPU GasNet to revise its existingaccess arrangements to incorporate the SouthWest pipeline in Victoria. It is currentlyconsidering proposed rule changes to theVictorian Market System Operation Rules.

Many electricity code changes were assessed,including the entry of Tasmania into the nationalelectricity market. On 1 January 2001 theCommission commenced regulation of SouthAustralian and Victorian transmission networks.In Queensland this begins on 1 January 2002,and the Commission released a draftdetermination of the network revenue capsassessment.

In telecommunications, the Commission hasexpended considerable resources on its disputeresolution functions. In association with theresolution of 25 arbitrations, the Commissionhas released detailed pricing principles foraccess to fixed (PSTN) and mobile (GSM)networks. A further 21 arbitrations were stillcurrent at the end of the year. The Commissioncontinues to review the extent of regulation ascompetition develops.

In transport, the Commission completed areport on a proposed price increase at Sydneyairport and assessed price cap compliance forregulated airports. It is currently assessingaccess undertakings from the Australian RailTrack Corporation covering the terms andconditions of access to tracks owned orleased by ARTC.

In fulfilling its price-monitoring role, theCommission monitored unleaded petrol pricesfrom July 2000 to June 2001. It also released areport about market milk product sales in April2001, which demonstrated that during themonitoring period, the falls in farm-gate pricesfor raw milk brought about by deregulation werepassed on to consumers.

There have been reviews by the ProductivityCommission of the Prices Surveillance Act, thegeneral access arrangements under Part IIIA,and the regulatory arrangements intelecommunications and airports.The Commission has provided submissionsto these reviews.

In a number of deregulating ultility sectors therehas been greater competition with an increasednumber of participants. For example intelecommunications there are now around 70 carriers and over 100 telephony serviceproviders. Consumers have benefited from lowerprices and greater choice in a number of sectors.A report by BIS Shrapnel has shown stronggrowth in investment in telecommunications.In the gas pipeline sector, plans totalling some$9 billion to build thousands of kilometres ofpipelines have been reported. In electricityregulated networks have proposed tosignificantly increase investment in theirnetworks.

MergersThe Commission assessed 265 merger andacquisition proposals of which 13 raised majorcompetition concerns. Ten proceeded after theparties signed section 87B undertakings tolessen any anti-competitive effects and threewere withdrawn.

Merger activity was lively in the health, buildingmaterials, airline, agribusiness and retail sectors.The number of mergers also rose in deregulatedindustries, such as dairy and energy, and inglobal industries including the media, finance,pharmaceutical and resources.

Some major mergers that the Commissiondid not oppose in 2000–01 included theacquisition of Impulse Airlines by QantasAirways; the sale of Franklins supermarkets toa number of supermarket entities includingWoolworths; and the acquisition of AustralianHospital Care by Mayne Nickless. Each of thesemergers involved significant analysis and publicinquiry by the Commission. They were onlyconcluded after each of the parties providedsection 87B undertakings to the Commissionto lessen any anti-competitive detriment.


Consumer protectionThe Commission’s focus on traditional consumerprotection, such as misrepresentation andmisleading and deceptive conduct, continued.In September 2000, the Commission tookaction against Target Australia for false,misleading and deceptive advertising. This wasupheld by the Federal Court, which orderedTarget to review its trade practices complianceprogram, broadcast corrective advertisements,and pay the Commission’s costs. It also issuedan injunction restraining Target from advertisingin the same way for four years.

The Commission examined health insurance andpetrol issues, and matters of undue harassment,pyramid selling and coercion. It also developedits cooperation with other government agenciesand finalised eight matters regarding breaches ofproduct safety standards.

E-commerce

Extra funding for work in e-commerce andcomputer forensics has prompted investigationsinto possible trade practices breaches in Internetmarkets, B2B (business to business), B2C(business to consumer) transactions andonline marketing.

The Commission has undertaken significantresearch into the potential competition issuessurrounding e-commerce transactions, and theimpact this may have on Australian consumers.

In April 2001 the Commission launchedSlam-A-Cyberscam to enable consumersto lodge complaints against online traders.The Commission also led an Internet SweepDay evaluating websites with overseas regulatoryagencies for their level of compliance with theOECD Guidelines on Consumer Protection inE-commerce.

Fair.com was one of several new Commissionpublications to educate Internet serviceproviders and businesses regarding fair dealingin domain name registration and websiteadvertising.

Small business The Small Business Unit, now in its third year,continued to build its outreach program toinform small businesses about dealing with theTrade Practices Act. It launched the CompetingFairly forums, which involve satellite broadcaststo over 60 towns throughout Australia.The forums inform rural businesses andconsumers of their rights and obligationsunder the Trade Practices Act. They aim to buildconnections between the Commission, industryand community organisations and have beenvery effective in reaching the bush.

The corporate video, Fair Game or Fair Go,explains the meaning of unconscionable conductto small businesses while several publications,some written in cooperation with other agenciessuch as the Australian Retailers Association, takeup similar themes.

AdjudicationThe Commission received 53 applications forauthorisation, 345 notifications for exclusivedealing and made 30 determinations. It alsotook part in a joint study with the Reserve Bankof Australia on access and interchange feesin Australia’s debit and credit card schemes.As a result the interchange scheme is nowsubject to the regulatory processes of the RBA.

Since the coverage of the Trade Practices Actwas extended in the mid-1990s, more mattershave been coming before its AdjudicationBranch. They cover industries where the Actdid not previously apply, because of its limitedjurisdictional reach or overriding legislation,and include the Royal Australasian College ofSurgeons authorisation application and variousdeterminations concerning the rural sector.

International unitActivity between regulators and competitionauthorities at the international level has grown,particularly regarding international airlineagreements and e-commerce issues.The Commission has attended meetings aboutestablishing new forums for discussing globalcompetition policy and law enforcement.The Commission is also helping several countriesintroduce competition laws.


Summary of financial reportThe Commission’s budget for 2000–01 was$75.6 million, which included a once-offinjection of approximately $25 million to fundthe GST activities and $10 million to boost itslegal resources.

The budget for 2001–02, after removing theonce-off funding of $35 million, is an increaseof about 27 per cent on 2000–01. The increasewill fund the Commission’s activities in a numberof existing areas as well as new activities such asin e-commerce. A litigation reserve fund, initiallyof $10 million, will assist court actions. The fundwill build to a reserve of $20 million and willstrengthen the Commission’s ability to deal withmajor litigation. The budget for 2001–02 is$73.4 million.

A funding review by the Department of Financeand Administration evaluated the Commission’skey operating environment and costing systems.It interviewed various stakeholders andbenchmarked strategic functions against otherAustralian and overseas agencies. It is notuncommon for such a review to lead to reducedfunding. However, in the Commission’s case,after rigorous evaluation, it was found that asubstantial increase was warranted. This wasdone in the May 2001 Budget.

With the additional funding the Commissioncan maintain its current high standard of servicedelivery and meet emerging priorities such ase-commerce and rural and regional issues.

ACCC staffMr Allan Asher’s term as Deputy Chairmanexpired on 3 November 2000. He left to take up a new position at Consumer International’sheadquarters in London, as the global directorof campaigns. Mr Asher was appointed to theTrade Practices Commission in 1988, and whenthe Australian Competition and ConsumerCommission was established in 1995, he wasappointed Deputy Chairman. During his term hechaired the Enforcement Committee, the EnergyCommittee and the OECD Consumer PolicyCommittee. Mr Asher made a major contributionto all aspects of Commission activities, driven byhis deep-seated personal values and concern forthe welfare of others.

The Commission also thanks ex officio memberMr Graham Scott for his contributions.Mr Scott’s term expired on 1 April 2001.He was replaced by Mr Lew Owens, the SouthAustralian Independent Industry Regulator,from 29 June 2001. Mr Alan Tregilgas, theUtilities Commissioner in the Northern Territory,was appointed on 18 October 2000.

The Commission recruits high quality employeesand 2000–01 was no exception. From a highlycompetitive field, the Commission recruited29 graduates and two international interns, whoare presently completing rotations throughoutvarious work areas. Skills at the middle andsenior ranks were also developed throughtraining courses and seminars. The Commissionprides itself on its highly attractive workenvironment, study assistance scheme andsupport for staff at all levels.

LiaisonThe Commission’s activities greatly benefitedthis year through effective liaison withcommunity organisations, businesses, consumersand Federal, State and Territory agencies.It works with many overseas agencies inpromoting trade practices compliance.

Amendments to the TradePractices ActOn 26 July 2001 amendments to the TradePractices Act relating to small business andstrengthening the enforcement provisions cameinto effect. These amendments (see appendix 1,page 179 for greater detail) include:

• raising penalties for breaches of the consumerprotection provisions to $1.1 million forcorporations and $220 000 for individuals;

• extending the protection for small businessesto transactions up to $3 million in value fromunconscionable conduct by a stronger party;

• broadening the powers for the Commission totake representative actions and seekdeclarations; and

• altering the ‘market’ definition in the mergersand acquisitions test to include a substantialmarket in regional Australia.


The Commission believes the amendments willincrease protection for consumers and smallbusinesses against unscrupulous businesspractices.

OutlookThe last 10 years have seen substantial changein competition law both domestically andinternationally. The Australian Competition andConsumer Commission was formed by a mergerof the Prices Surveillance Authority and theTrade Practices Commission in 1995. Codesregulating access to essential facilities havebeen formulated and improved. Penalties haveincreased sharply, the consumer protectionprovisions are more vigorously enforced, mergerlaw has been strengthened and the protectionfor small businesses against anti-competitivebehaviour is more robust. The Commission hasconducted more cases under both Parts IV and Vin the 1990s than in the 1980s. These caseshave generated a great deal more publicity andpublic discussion regarding the Act andcompetition policy.

As a result of the Hilmer Report, broaderreforms in competition policy have occurredunder the Competition Policy Reform Act 1995.Responsibility for the Trade Practices Act hasbeen transferred from the Attorney General tothe Treasurer. These changes have lifted theprofile of the Act and the Commission and itsability to promote the welfare of all Australians.

Looking forward: futurechallenges for the CommissionThree major forces are driving change in themodern economy: globalisation, the emergenceof new technology and progressive liberalisationof markets, both local and international.All have major implications for the future ofcompetition law and will have a substantialimpact on the work and focus of theCommission. For example, when globalisationleads to increased international competition,this is taken into account by the Commission inassessing questions about competition inAustralia.

These forces, while generally beneficial forconsumers and businesses, may require somescrutiny by competition and consumerprotection regulators.

GlobalisationThe increasing interdependence between nationsgenerally benefits competition and consumers.However, in some cases globalisation can beassociated with anti-competitive behaviour suchas international cartels. Recently in such a case,the Federal Court of Australia imposed recordfines on three subsidiaries of overseas animalvitamin suppliers for price fixing and marketsharing in breach of the Trade Practices Act.The conduct in Australia was a manifestationof arrangements made overseas by the parentcompanies, and its resolution reflected thecooperation between the Commission andinternational regulatory agencies.

The number of global and multi-jurisdictionalmergers has also grown. Usually, the globalcharacter of mergers has not caused majordifficulties in Australia. Most are not anti-competitive.

However, when they have anti-competitiveeffects in Australia, the Commission hasopposed the merger. In some circumstances,it has been possible to find a solution to theanti-competitive effects. For example, theworldwide merger of British American TobaccoPLC and Rothmans Holding would have led toa substantial lessening of competition in theAustralian cigarette market. The divestiture ofcertain brands to another international cigarettecompany enabled the merger to proceed.However, in other circumstances, such asthe proposed acquisition by The Coca ColaCompany of Cadbury Schweppes internationalsoft drink brands, the anti-competitive effectsof the proposal were not able to be resolved bythe merger parties and the deal was blocked inAustralia (and a number of other countries).

The international dimension to competitionpolicy has expanded, with greater cooperation,and more agreements and treaties betweencountries. Multilateral activity at the OECD,World Trade Organisation, APEC and otherregional groupings has increased. During theyear the establishment of a global competitioninitiative was discussed, instigated by theInternational Bar Association. The OECD hasalso set up a global competition forum and theWTO has established a working party to studythe interaction of trade and competition policy.


Perhaps the most important global developmentin competition policy in the next 20 years willbe the emergence of competition policies indeveloping countries. Australia is helping totrain regulators in other countries in applyingcompetition law. Australian business will gainthrough better access for exports to thesecountries. The adoption of competition law willhelp reduce restrictive practices that currentlyhinder Australian exports and foreign investment.

New technology and e-commerceThe Commission has devoted increasedresources to the study of B2B, B2C and otherrelated issues. Most e-commerce developmentsbenefit consumers through greater efficiencies,wider choice and improved purchasing systems.It also aids competition because lower entrybarriers increase the field of competitivesuppliers. However, some B2B arrangementscould involve competitors reaching anti-competitive agreements or the creation ofnew sources of market power. These requirethe scrutiny of regulators.

There are concerns that consumers have lessprotection in Internet transactions, especiallywhere cross border transactions occur.The provisions of the Act regarding misleadingand deceptive conduct, implied warranties,product safety, as well as privacy and fraud,may not apply or be easily enforced in thesesituations.

One view is that competition law should notapply in the same way in high technologysectors, as any market power will soon bedisplaced by further advances in new technologyitself. It is said that regulators and courts cannotforesee the effects of technology, and thereforetheir decisions are likely to be wrong.

Others believe new technology can lead to alarge accumulation of market power in a shortperiod and that the scope for consumerexploitation and anti-competitive conduct isimmense. The counter is a fast and effectiveapplication of competition law to stop theconduct before it spills over into related markets.

The accumulation of market power in somenetwork industries appears to be large. This hasaffected competition policy in the utilities, hightechnology and financial sectors and will be

central to the Commission’s policy work in futureyears.

LiberalisationLiberalisation of international trade, foreigninvestment, and domestic deregulation isgenerally beneficial to competition.

When governments liberalise markets, businessessometimes resist. The sharp increase ininternational cartels in recent years reflectsefforts by some corporations to counter lowertrade and investment barriers. As barriers fall,businesses that have had domestic monopoliesor near monopolies face competition fromoverseas as well as easier entry to overseasmarkets. One response can be the formationof international cartels to fix prices and sharemarkets. This calls for attention by regulatorsand often requires coordinated action acrossnational borders.

Such conduct also occurs domestically.While deregulation generally promotescompetition, it also provides incentives foranti-competitive behaviour such as cartelactivity, the misuse of market power or anti-competitive mergers. Anti-competitive activitythat follows in the wake of deregulation is highon the Commission’s agenda.

Other forces — regional and ruralAustraliaWhile the impact of globalisation has triggeredmuch debate, the other end of the spectrum isequally crucial — where strong demand existsfor the Commission to be more active in regionaland rural Australia.

Additional funding has been earmarked forregional and rural programs. In July 2001 theAustralian Parliament amended the mergerprovisions in section 50 to explicitly refer toregional markets. The Commission itself is moreactive in reaching regional and rural Australiaand will continue to be so in coming years.

The Commission’s approachTo tackle these challenges, the Commissionneeds to examine and alter, where necessary, itsown approach to the analysis of competition.When, for example, globalisation causes greaterimport competition in Australia, this is taken into


account. The Commission has not rejected amerger proposal where imports have been morethan 10 per cent of the market.

In some cases institutional arrangements needto change. For example, when anti-competitivebehaviour crosses national boundaries, acombined international effort is required.It is vital that Australia participates to ensureits voice is heard.

If we are to have an internationally competitiveeconomy we must apply a vigorous competitionlaw to respond to these new market imperatives.

Proposed changes to the TradePractices ActTo tackle such a dynamic environment, theCommission believes the Trade Practices Actshould be changed. While its basic structure issound, the Commission believes that scopeexists for several amendments. The three keychanges needed are:

1. The introduction of criminal sanctions for hardcore acts of collusion by big business

The Commission believes that criminal sanctionsshould apply to price fixing, bid rigging, marketsharing, and possibly, collective exclusionaryboycotts by big business. These can include themost serious, flagrant and profitable acts ofcollusion. These acts that infringe sections 45Aand 4D are not only dishonest but they directlyaffect prices and seriously impair the operationof free markets. Collusion is rightly comparedwith fraud, insider trading and other white-collarcrime. Criminal sanctions to deter and properlypunish such behaviour, such as imprisonment,would bring the Trade Practices Act into line withseveral of our major trading partners, includingGermany, USA, Canada, Japan, Korea and theUK. This change would contain the usualsafeguards for businesses, such as therequirement to prove the conduct beyondreasonable doubt before a court of law, and thediscretion of the judiciary to determine the mostappropriate remedy.

Such a change in the law would not apply tosmall businesses or trade unions.

2. A revision of s. 46 regarding the misuse of market power

The Commission believes two major impedimentshinder the proper functioning of section 46which relates to the misuse of market power.

The first is the ‘purpose’ test that can undulylimit the range of anti-competitive behaviourcovered by the Act. The Commission sees meritin adding an ‘effects’ test. The amended testwould then determine whether the proscribedanti-competitive behaviour had the ‘purpose oreffect’ of eliminating or damaging a competitor;preventing entry; or preventing competitiveconduct in a market. The Commission (and thecourts) could then examine the actual impact ofthe conduct as opposed to being limited toexamining its intent.

The Commission is also concerned about thelength of time it normally takes to deal withissues of market power. To overcome this, theCommission recommends cease and desistpowers to order a temporary halt to conduct itconsiders a breach of section 46 (and possibly,other sections of the Act) pending court review.Expanding the Commission’s investigationpowers will enable it to better detect andprosecute cartels and other anti-competitivebehaviour, as in New Zealand and some otherjurisdictions.

3. The introduction of civi lpenalties into Part V of the Act

Breaches of the consumer protection provisionsin Part V of the Act do not currently attract thecivil penalties that apply to the restrictive tradeprovisions in Part IV. While criminal penalties(such as fines) are available, the Commissionbelieves that Part V should contain the optionof civil penalties.

Sometimes a breach of Part V involves a failureof compliance so serious that it requires apecuniary penalty but not criminal action. Civilpenalties will ensure that would-be offenders aredeterred, victims are compensated and justice isprompt, effective and at the lowest possible costto the taxpayer.


These changes will further deter big businessesfrom engaging in anti-competitive behaviour andincrease compliance with the Trade Practices Actto the benefit of Australian consumers.

The Commission has recorded strong results thispast year in fighting anti-competitive conductand ensuring a fairer marketplace. This wouldnot have been possible without dedicated andhighly competent staff. I would like to thankthe Commission staff as well as my fellowCommissioners for their creativity,professionalism and tireless work over the pastyear in tackling the challenges presented.

Professor Allan Fels AO

Chairman

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AUSTRALIAN COMPETITION AND CONSUMER COMMISSION ORGANISATION

REGIONAL COMPLIANCE OPERATIONSN A T I O N A L

Mergers and AssetSales (C,S&M)

Mark PearsonGeneral Manager

Adjudication(C)

Tim GrimwadeGeneral Manager

CorporateManagement (C&M)

Helen LuGeneral Manager

Compliance Division (C)

David SmithExecutive General Manager

Legal Group (C&M)

Bruce BrownGeneral Manager

General Counsel

Bob Alexander

GST OperationsDivision (C)

Rod OverallExecutive General Manager

Regulatory AffairsDivision (M)

Joe DimasiExecutive General Manager

Associate CommissionersHandicottKingWatt

WilkinsonWilliamson QC

Ex-officio CommissionersBaxter ReevesFlint OwensHall ShawParry Tamblyn

Tregilgas

C —Canberra

S —Sydney

M—Melbourne

Electricity Group (C)

Michael RawstronGeneral Manager

Gas Group (C&S)

Transport and PricesOversight (M)

TelecommunicationsGroup (M&S)

Kanwaljit KaurGeneral Manager

Margaret ArblasterGeneral Manager

Michael CosgraveGeneral Manager

Restrictive TradePractices (C)

Michael KileyDirector

Consumer Protection (C)

Small Business

Carl BuikDirector

Nigel RidgwayDirector

VictoriaTom FahyRegional Director

TamworthAlbert Julum

NewSouthWalesGeoff WilliamsRegional Director

TownsvilleTony Hilton

QueenslandAlan DucretRegional Director

TasmaniaPeter ClemesRegional Director

Northern TerritoryDerek FarrellRegional Director

South AustraliaBob WeymouthRegional Director

Western AustraliaSam Di ScerniRegional Director

ChairmanAllan Fels AO

Deputy Chair CommissionersSitesh Bhojani John MartinDavid Cousins Rod ShogrenRoss Jones

Chief Executive OfficerBrian Cassidy

SecretariatMedia RelationsInternational Liaison


The Commission is an independent statutoryauthority which has the role of administering theTrade Practices Act 1974, State and TerritoryApplication Acts and the Prices Surveillance Act1983.

The Commission seeks to improve competitionand efficiency in markets, foster adherence tofair trading practices in well-informed markets,promote competitive pricing wherever possibleand restrain price rises in markets wherecompetition is less than effective. It is especiallyconcerned to foster a fair and competitiveoperating environment for small business.

In seeking to prevent or limit anti-competitiveconduct and to ensure adherence to fair tradingprinciples the Commission:

• takes action through compliance educationprograms, investigations, litigation orenforceable undertakings if necessaryto overcome market problems;

• adjudicates on business practices (includingmerger proposals);

• considers access issues concerning essentialfacilities;

• enforces product safety standards;

• has functions under provisions of theTrade Practices Act which impose a liabilityon manufacturers for damage caused bydefective goods;

• undertakes certain functions relating to pricessurveillance, public inquiries and monitoringof goods and services under the PricesSurveillance Act;

• administers the prohibition on priceexploitation in relation to the New Tax System;

• maintains close liaison with Federal, Stateand Territory Governments, and regulatoryauthorities on economic structural reform; and

Chapter 1Overview ofthe ACCC

C h a p t e r

1


• provides guidance to business and consumersabout the Trade Practices Act and the PricesSurveillance Act.

LegislationTrade Practices ActThe object of the Trade Practices Act is toenhance the welfare of Australians through thepromotion of competition and fair trading andprovision for consumer protection.

Prices Surveillance Act The Prices Surveillance Act enables theCommission to examine the prices of selectedgoods and services. The objective is to promotecompetitive pricing wherever possible and torestrain price rises in markets where competitionis less than effective.

Related legislation The Commission has responsibilities under otherlegislation as follows.

Airports Act 1996 — to perform quality ofservice monitoring and reporting, to facilitateaccess to airport services of nationalsignificance, and to receive accounts andreports which facilitate its prices oversight role.

Australian Postal Corporation Act 1989 — toinquire into disputes as to the amount of postalrate reduction given by Australia Post to bulkmailers interconnecting or attempting tointerconnect to the Australian Postal System.

Broadcasting Services Act 1922 — to report, interms of the merger and authorisation provisionsin the Trade Practices Act, on the allocation ofsubscription television broadcasting licences toapplicants. To monitor, in conjunction with theAustralian Broadcasting Authority, the cross-media ownership of the holders of subscriptiontelevision broadcasting licences.

Gas Pipelines Access (Commonwealth) Act1998 — gives effect to the Commission’s roleas regulator of third party access to natural gaspipeline systems under the National Third PartyAccess Code for Natural Gas Pipeline Systems.This role includes arbitration of disputes over

spare capacity, and regulation of increases incapacity and the terms and conditions uponwhich haulage services are provided.

Moomba-Sydney Pipeline System Sale Act1994 — arbitration of disputes over theexistence of spare capacity, the interconnectionof a pipeline to the Moomba-Sydney pipeline,increases in capacity, and terms and conditionsof provisions of haulage service.

Telecommunications Act 1997 — theCommission’s main functions under the Actrelate to telecommunications competitionmatters. Various provisions give the Commissiona role wider than it has under the TradePractices Act.

Trade Marks Act 1995 — responsibilities inrelation to the approval of Certification TradeMarks.

Exceptions under Commonwealth,State and Territory legislationSome Commonwealth, State and Territory Actspermit conduct that would normally be anoffence under the Trade Practices Act. Section51(1) of the Trade Practices Act providesthat such conduct may be permitted if it isspecifically authorised under those otherActs.

Below is a list of legislation that allows such conduct.

Commonwealth Australian Postal Corporation Act 1989

Trade Practices Amendment (Country of Origin Representations)Act 1998 Item 1, Schedule 3

Wheat Marketing Legislation Amendment Act 1998

Year 2000 Information Disclosure Act 1999

New South Wales Sydney Organising Committee for the Olympic Games Amendment Act 1996

Farm Produce (Repeal) Act 1996

Totalizator Legislation Amendment Act 1997 No. 151

Marketing of Primary Products Amendment (Wine Grapes Marketing Board)Act 1997

Liquor and Registered Clubs Legislation Amendment (Community Partnership)Act 1998

Marketing of Primary Products Amendment (Rice Marketing Board) Act 1998

Dairy Industry Amendment (Trade Practices Exemption) Act 1998

Competition Policy Reform (NSW) Amendment (Waste) Regulation 1998

Competition Policy Reform (NSW) Amendment (Grain Marketing) Regulation 1998

Competition Policy Reform (NSW) Amendment (SOCOG and SPOC)Regulation 1998

Olympic Roads and Transport Authority Act 1998

Liquor and Registered Clubs Legislation Further Amendment Act 1999

Competition Policy Reform (NSW) Amendment Regulation 2000

Queensland Primary Industries Legislation Amendment Act 1999, amending the Chicken Meat Industry Committee Act 1976

Competition Policy Reform (Queensland — Dairy Produce Exemptions)Regulations 1997 (as amended)

Sugar Industry Act 1999

Competition Policy Reform (Queensland) Public Passenger Service Authorisations Regulation 2000

Victoria Electricity Industry Act 1993

Gas Industry Act 1994

Tasmania Electricity Supply Industry Act 1995

Electricity Supply Industry Restructuring (Savings and Transitional Provisions)Act 1995

Western Australia North West Gas Development (Woodside) Agreement Amendment Act 1996

South Australia Dairy Industry Act 1992

Authorised Betting Operations Act 2000

Australian Capital Milk Authority (Amendment) Act 1999 (No. 2 of 1999)Territory

Northern Territory 2000 Information Disclosure Act 1999



Outputs and performanceindicators for 2000–01The Commission has one outcome that definesits role in delivering Government competitionand consumer policy: that is, to enhance thesocial and economic welfare of the Australiancommunity by fostering competitive, efficient,fair and informed Australian markets.

The Commission’s outputs and performanceindicators, as published in the Portfolio BudgetStatements in 2000–01, are:

Output 1.1.1 — The properadministration and enforcement ofthe Trade Practices Act 1974, thePrices Surveillance Act 1983 andrelated laws

Performance indicators

• Responded to complaints and inquiries.

• Appropriate enforcement action taken andgoals achieved, i.e. stopped unlawful conduct,compensation gained for loss or damage,compliance with the Act, pecuniary penalty.

• Merger proposals likely to have an anti-competitive effect opposed or authorisedwhere there is sufficient public benefit.

• Appropriate action taken to ensure nobusiness takes unfair advantage of A NewTax System.

• Granted statutory immunity from legalproceedings where there is sufficient publicbenefit concerning some anti-competitivepractices (as prescribed by the TradePractices Act).

• Access to essential services including postalservices and airport regulation is made onreasonable terms and conditions.

• Regulated gas market as required by theNational Third Party Access Code for NationalGas Pipeline Systems.

• Regulated electricity market as required by theNational Electricity Market Code.

• Regulated telecommunications market.

• Publication of new and amended provisions ofthe Trade Practices Act and the new ACCCprocedures.

• Promoted competitive pricing where possibleand restrained price rises in markets wherecompetition is less than effective.

Output 1.1.2 — Performance ofactions that promote competitionand fair trading and enable wellfunctioning markets

Performance indicators

• ACCC policy and positions formulated —discussion documents and guidelines oncompetition initiatives and regulatorymechanisms be prepared, disseminated anddiscussions take place with Government,industry and consumers.

• Consulted with Federal and StateGovernments on competition issues arisingfrom regulatory reforms.

• Responded to Government inquiries oncompetition and consumer protection issuesincluding references under s. 28 of the TradePractices Act relating to dissemination ofinformation, law reform and research.

• Actively participated in the developmentof effective competition and consumerprotection laws internationally.

Structure of the CommissionDuring the reporting period the Commissioncomprised seven full-time commissioners,reducing to six on 6 November 2000 when theappointment of deputy chairman Allan Asherended.

The remaining six full-time commissioners were:Chairman Professor Allan Fels, CommissionersSitesh Bhojani, Dr David Cousins, Ross Jones,John Martin and Rod Shogren.

Five part-time associate commissioners servedduring the reporting period: Teresa Handicott,Yasmin King, Warwick Wilkinson AM, Don Wattand Professor Douglas Williamson QC.

The nine ex-officio members are: Paul Baxter,Professor David Flint AM, John Hall, Dr ThomasParry, Andrew Reeves, Alan Tregilgas, Tony Shaw,Dr John Tamblyn and Lew Owens. Graham Scott’sappointment ended on 1 April 2001 and he wasreplaced by Lew Owens from 29 June 2001.

Biographies and photographs can be found inappendix 5.


Table 1.1. Financial and staffing resources 2000–01

Reporting by outcome Outcome 1 Total

Budget Actual Budget Actual$’000 $’000 $’000 $’000

Total net administered expenses - 101 - 101

Add: Net cost of entity outputs 70 643 67 894 70 643 67 894

Net cost to budget outcome 70 643 67 995 70 643 67 995

Outcome specific assets deployed as at 30 June 2001 - - - -

Assets that are not outcome specific deployed - - 7 462 13 180as at 30 June 2001

Major agency revenues andexpenses by outcome Outcome 1 Total

Output Output Total1.1 1.2 Outcome 1

Actual Actual Actual Budget Actual$’000 $’000 $’000 $’000 $’000

Operating revenuesRevenue from government 65 349 10 338 75 687 75 627 75 687Sale of goods and services 799 246 1 045 468 1 045Other non-taxation revenues 229 18 247 55 247

Total operating revenues 66 377 10 602 76 979 76 150 76 979

Operating expensesEmployees 27 323 2 383 29 706 28 804 29 706Suppliers 35 065 2 281 37 346 41 533 37 346Other 2 024 110 2 134 829 2 134

Total operating expenses 64 412 4 774 69 186 71 166 69 186

Major administered revenues andexpenses by outcome Outcome 1 Total

Budget Actual Budget ActualOperating revenues $’000 $’000 $’000 $’000

TaxationFines and costs 9 975 42 807 9 975 42 807Authorisation fees - 432 - 432Other 25 6 25 6

Total taxation 10 000 43 245 10 000 43 245

Total operating revenues 10 000 43 245 10 000 43 245

Operating expensesNet write-down of assets - 101 - 101

Total operating expenses - 101 - 101

Staff years 2000–01 1999–2000438 382


Social justiceSocial justice and equity themes are implicitin both the Trade Practices Act and the PricesSurveillance Act and are strongly reflectedthroughout this annual report. In the TradePractices Act the themes are most obvious inthe parts dealing directly with fair trading andconsumer protection — the basic rights ofpeople in their everyday consumer transactions:

• Part IVA — which prohibits unconscionableconduct in both consumer and business-to-business transactions;

• Part V — which is built on a generalprohibition of misleading and deceptiveconduct, reinforced by a range of specificproscriptions of such behaviour and includesprovisions dealing with product safety,information standards and statutorywarranties;

• Part VA — which imposes a liability ofmanufacturers for damages caused bydefective goods; and

• Part VB — which prohibits the exploitation ofconsumers or excessive profit-taking resultingfrom the implementation of the New TaxSystem.

Other documentsThe Commission has a very active publicationsprogram dealing with the specifics and rationaleof its work. Discussed in chapter 7 and appendix7, this includes a regular journal of developmentsand issues, and a wide range of booklets,guidelines and discussion papers aimed atpromoting better understanding of thelegislation for which the Commission isresponsible, its work and procedures. Many ofthese publications and documents are availableto the public at the Commission’s Internetwebsites — <http://www.accc.gov.au> and<http://gst.accc.gov.au>.

External scrutinyDuring the year the financial operations ofthe Commission were audited by the Auditor-General. The audit of the financial statementswas satisfactory and an unqualified audit reportwas issued. The Commission appeared beforethe Senate Legislation Committee (Economics)three times; and the Standing Committee onEconomics, Finance and Public Administration(Review of annual report 1999–2000) twice.

Freedom of informationThe Commission received 21 formal freedomof information requests during 2000–01.The requests were for access to a wide rangeof documents relating to investigations andcomplaints involving the Commission.

In nine cases access was granted in part.Access was granted in full in two cases andrefused in two. Four requests were notproceeded with and in respect of one theCommission had no relevant documents.Three requests had not been finalised by theend of the year. It is Commission policy toprovide information wherever possible. However,it seeks to protect information provided to it inthe course of its investigations and inquiries, andtreats that information as confidential both toprotect the sources and to ensure the flow ofinformation vital to the Commission’s functions.

Two requests to have processing charges waivedwere granted. Both were on the grounds ofpublic interest.

There were no requests for internal review andno applications were made to the AAT for reviewduring 2000–01.


C h a p t e r

2Output 1.1.1: The proper administrationand enforcement of the Trade Practices Act1974, the Prices Surveillance Act 1983and related laws; and

Output 1.1.2: Performance of actionsthat promote competition and fair tradingand enable well-functioning markets.

Year in review During 2000–01 substantial Commissionresources continued to be used to ensure thatthe benefits of the New Tax System were passedon to consumers and that businesses did notexploit consumers in implementing the taxchanges. This involved providing information tobusiness and consumers, liaison with individualbusinesses and business and consumerorganisations, national monitoring of pricesand investigating complaints and appropriateenforcement action.

After one year of the GST the Commissionfound that most businesses have fully compliedwith its pricing guidelines. Businesses generallyacted correctly in adjusting prices to takeaccount of the tax changes. The changesaffected prices mostly in the September 2000quarter and were within the Commission’sestimates of their effect. The overall impacton prices was less than forecast by theCommonwealth Treasury and economiccommentators generally. Most companies thatcompleted public compliance commitments haveadvised the Commission they will not increaseprices further as a result of the tax changes.Price rises that have occurred since then havegenerally been consistent with underlyinginflation evident before the tax changes wereimplemented.

The NewTax System


From early July 1999 the Commission hasinvestigated potential non-compliance with thepricing guidelines, handling more than 120 000inquiries (64 000 during 2000–01), includingabout 40 000 complaints (24 000 during2000–01). Many were found not to be breachesof the Trade Practices Act and many weremultiple complaints about the same business.Since July 1999 the Commission has investigatedin detail about 6200 GST-related matters.As a result numerous businesses took correctiveaction to remedy contraventions related to thetax changes. They have refunded nearly $10.1million on behalf of approximately 990 000consumers.

The Commission’s role

PERFORMANCE INDICATOR

• Appropriate action taken to ensure no businesstakes unfair advantage of the New Tax System.

The Commission’s responsibilities under Part VBof the Trade Practices Act require it to issueguidelines on pricing responses to the NewTax System changes, to check prices and takeaction against businesses that increase pricesunreasonably. The law against price exploitationoperates until 30 June 2002 and reflects Federaland State Parliaments’ desire to addressconsumers’ concerns about the possibility ofsome businesses taking advantage of the taxchanges to charge unreasonably high prices.

Price exploitation carries penalties of up to$10 million per offence for corporations, andup to $500 000 per offence for individuals.The provisions also apply to advisers foundto be knowingly concerned in, or aiding andabetting, contraventions of the law.

Under the law the Commission can issue anotice to a corporation or person it considershas contravened the prohibition against priceexploitation. In any court proceedings forinjunction or penalty, a notice constitutesprima facie evidence that the price charged isunreasonably high, and cannot be attributed tothe New Tax System changes, supplier’s costs,supply and demand conditions or any otherrelevant matter. If a price exploitation notice is

served, it is up to the corporation or person toshow that they did not engage in priceexploitation.

A second type of notice can help prevent priceexploitation by specifying a maximum price for asupply for a specified period, which may extendto the end of the three-year transition period.A maximum price notice effectively warns thebusiness that a supply above the maximum pricespecified constitutes price exploitation.

The Commission has additional New Tax Systemresponsibilities in relation to:

• the Commonwealth Fuel Sales Grants Schemeproviding a grant, generally of 1 or 2 centsper litre, to fuel retailers and distributors forpetrol and diesel sold to consumers inregional and remote areas of Australia;

• the reduction in Commonwealth excise onpetrol and diesel from 2 March 2001; and

• the reduction in Commonwealth excise ondraught beer from 4 April 2001.

To ensure that the benefits of the grant andexcise reductions were passed on to consumers,these measures were prescribed under the priceexploitation legislation administered by theCommission.

The Commission’s promotion of complianceemphasised the role of informing and educatingbusinesses and consumers about their rightsand obligations under the price exploitationprovisions of the Act. Its education strategy,which includes wide distribution of theCommission’s guidelines on price exploitation,has been highly effective in raising businessawareness. It has also increased consumerknowledge about expected price changes.

In its oversight role, the Commission soughtto achieve the aims of the legislation cost-effectively. Central to meeting its responsibilitieswas obtaining information about prices andpricing decisions and providing informationto market participants. In assessing pricemovements the Commission focused on pricechanges as a result of the New Tax System,rather than price levels.


The Commission has investigated manyallegations of price exploitation. It addressedoffending behaviour and sought to prevent itfrom occurring again, to ensure consumersreceived restitution and to instigate courtaction, if required.

The Commission is required, under Part VBof the Act, to report to the Minister within28 days after the end of each quarter aboutthe operations of its price exploitationresponsibilities in relation to the New TaxSystem.

Promoting compliance

PERFORMANCE INDICATORS

• Publication of new and amended provisionsof the Trade Practices Act and new ACCCprocedures.

• ACCC policy and positions formulated —discussion documents and guidelines oncompetition initiatives and regulatorymechanisms prepared, disseminated anddiscussions to take place with Government,industry and consumers.

The guidelinesThe Commission’s price exploitation guidelinesgive businesses the basic information neededto comply with the New Tax System. Revisedguidelines were published in March 2000, asrequired under Part VB, to provide greatercertainty for business in setting prices onthe introduction of the New Tax System.

The net dollar margin rule is a fundamentalprinciple of the guidelines. That is, if the NewTax System changes cause taxes and costs tofall by $1, then prices should fall by at least$1. If, after taking into account tax and costreductions resulting from the New Tax System,the costs of a business rise by $1, then pricesmay rise by no more than that amount.

Communications strategyThe Commission ran a comprehensivecommunications strategy to promote compliancewith the law during the transition to the NewTax System. The aim was to raise awareness andunderstanding among consumers and businesses

of their respective rights and obligations underthe legislation. This was achieved by providinginformation through printed publications, radioand print media advertisements, a dedicatedwebsite (http://gst.accc.gov.au) and the GSTPrice Line (1300 302 502).

This strategy also targeted businesses ownedand run by people from non-English-speakingbackgrounds. Aboriginal and Torres StraitIslander business enterprises also receivedspecial attention from the Commission.The Commission distributed appropriatelytailored information to consumers in thesediverse communities.

The Commission’s communications strategyinvolved anticipating issues likely to be ofconcern or interest to consumers and business.As new issues emerged, explanatory materialswere quickly developed and disseminated.

The key elements of the business strategy were:

• small business compliance guide;

• small business cost savings estimator;

• small business retail price adjustor;

• GST News for Business brochures;

• GST Checklist fact sheets;

• a business information network; and

• industry association liaison and presentations.

The key elements of the consumer strategy were:

• blanket distribution of Australia’s EverydayShopping Guide with the GST booklet;

• an extensive advertising campaign;

• the National GST Consumer ConsultativeGroup;

• a consumer information network;

• GST Talk fact sheets;

• the consumer newsletter GST Snapshots;

• GST Bulletins; and

• a How to make a complaint brochure.


Media activitiesThe Commission’s media activities are a keytool for promoting compliance. Media releases,print and radio advertisements, press articles,question and answer columns and pressinterviews all provided opportunities to informlarge audiences about GST pricing issues asthey arose.

Media releases

The Commission issued 64 media releasesrelated to the New Tax System during theyear. They promoted compliance by example,illustrating to the wider business community theconsequences of possible price exploitation andmisleading or deceptive conduct with respect tothe New Tax System.

Advertising program

The Commission’s advertising program informedcustomers and small businesses about the likelyprice impacts of the New Tax System and aimedto raise awareness of the Commission’s role.

An eight week print and radio advertisingprogram was launched in June 2000 andcontinued throughout July. To reach a wideaudience, the advertisements were run in themajor metropolitan media, rural and regionalmedia, specialised Aboriginal and Torres StraitIslander media and media targeting multiculturalcommunities, as well as magazines and radio forthe vision impaired.

The key message was that the Commissionintended to prevent price exploitation andto ensure that businesses passed on all costsavings from the tax changes to their customers.The Commission publicised the likely pricemovements and where people could get furtherinformation. Consumers were advised they couldcall the Commission’s GST Price Line in casesof price exploitation and that action would betaken.

The number of calls to the GST Price Lineincreased substantially during July 2000,demonstrating consumers’ interest andwillingness to question businesses aboutprice increases.

Press articles

In addition to the series of print advertisementsthe Commission continued to provide articlesand question and answer columns in newspapersthroughout the year. These were mainly used inthe major metropolitan daily newspapers, butalso in industry journals and other publications.

PublicationsTo date the Commission has produced around5.7 million GST publications since starting itsNew Tax System role. This does not include theEveryday Shopping Guide with the GST, whichwas delivered to every household in the countryand was also available in newsagencies and postoffices.

GST Bulletins

During the year 27 electronic GST Bulletinsregularly alerted consumers and businesses toemerging GST pricing issues. They dealt withtopical issues identified from calls to the GSTPrice Line as well as from the Commission’senforcement activities. They were producedquickly and distributed through the GSTinformation network.


GST Talk series

The GST Talk fact sheets gave consumersdetailed information about issues of publicconcern that emerged from inquiries andcomplaints to the GST Price Line and theCommission’s other compliance activities.They dealt with issues such as accommodationcharges in commercial residential premises(caravan parks etc.) and the abolition of financialinstitutions duty and stamp duty on quotedmarketable securities.

News for Business

These fact sheets addressed specific businessand industry topics dealing with such issues asfranchise fees, pricing hints for operators ofcafés, takeaways and restaurants, commercialand retail property leases, commercial contractswith rent review or price escalation clauses withreference to the CPI, and the abolition offinancial institutions duty and stamp dutyon quoted marketable securities. They weredistributed through relevant business, industryand professional associations.

Poster for the retai l sector

In response to continued inquiries aboutdisplaying and advertising prices, theCommission produced a poster for the retailsector to reinforce the message that pricesshould include GST. Over 200 000 weredistributed through business and industrygroups, local government councils and otheragencies and carried the message ‘No one likesto be misled — Prices should include GST’.Several organisations inserted the poster intotheir newsletters or industry journal.

Reports

In addition to publications containing generalinformation, the Commission published quarterlyreports for the Minister on its operations underPart VB as required by s. 75AZ of the TradePractices Act. Three price monitoring surveyreports were also published during the year.

GST information network

The GST information network is a Commissiondatabase network containing over 1800consumer and community groups, businessorganisations, industry associations, librariesand other agencies and groups. The Commissionused this network mainly to distributeinformation about the New Tax System bothelectronically and in hard copy. This materialwas also available from the Commission’s GSTwebsite or by calling the GST Price Line.

During the year over 150 consumer andcommunity organisations, representing around1.9 million people, received material throughthis network. Information for businesses wassent to more than 900 business and industryorganisations, representing just under twomillion people. Around 100 libraries and morethan 100 government and other agencies alsoreceived this information. The members of thenetwork represent around eight millionAustralians.

Electronic information

GST website

The GST website at <http://gst.accc.gov.au>provides easy access to relevant business andconsumer publications and answers to frequentlyasked questions. Reports on retail price changessince the introduction of the New Tax Systemare also available on the site.

Information is available on the website forAboriginal and Torres Strait Islanders and in 11languages other than English: Arabic, Chinese,Greek, Italian, Spanish, Vietnamese, Croatian,Macedonian, Serbian, Russian and Turkish.

Over the year there were almost three millionhits, with 160 000 individual sessions. The mostpopular areas on the site were the publicationsand the Pricing kit for small business.


GST Price Line

The GST Price Line (1300 302 502) — nowcalled the ACCC infocentre — is a telephoneinformation and complaints line for businessesand consumers. GST Price Line staff answeredinquiries about the Commission’s pricingguidelines and price changes, handled requestsfor the Commission’s GST publications andaccepted and logged complaints about possibleprice exploitation and misleading or deceptiveconduct relating to the New Tax System. ThePrice Line also referred callers to other agencieswhere appropriate, such as the Australian TaxOffice, the GST Start-Up Assistance Office andCentrelink.

From 1 May 2001 the GST Price Line becamepart of the ACCC infocentre, which is the initialresponse centre for all inquiries and complaintsto the Commission on competition andconsumer issues throughout Australia. Calls tothis 1300 302 502 service can be made fromanywhere in the country for the cost of alocal call.

During the reporting period 64 030 GST-relatedcomplaints and inquiries were logged into theCommission’s reporting system. Of these,40 027 (62.5 per cent) were inquiries and24 003 (37.5 per cent) were complaints. The10 industries most commonly referred to were:

COMPLAINTS PERCENTAGE

Supermarket and grocery stores 9.4

Automotive fuel retailing 8.0

Cafés and restaurants 5.1

Takeaway food retailing 4.7

Telecommunication services 4.3

Retailing (not elsewhere classified) 4.1

Pubs, taverns and bars 2.7

Domestic appliance retailing 2.7

Newspaper, book and stationery retailing 2.5

General insurance 2.0

INQUIRIES PERCENTAGE

Retailing (not elsewhere classified) 11.1

Supermarket and grocery stores 9.5

Central government administration 8.6

Automotive fuel retailing 5.3

Telecommunication services 3.1

Real estate agents 2.7

Takeaway food retailing 2.6

House construction 2.5

General insurance 2.4

Domestic appliance retailing 2.1


Choice Price Watch website

During the year the Commission continuedto provide information and assistance to theAustralian Consumers Association (ACA) forits Choice Price Watch website. This includedproviding the results of the Commission’s pricesurveys.

A special feature of the site was that consumerscould record pre- and post-GST prices on it.The ACA monitored these prices and gave theCommission regular reports about the operationand use of the site.

Corresponding with the general trend observedby the Commission, traffic to this site decreasedsignificantly over the course of the year. Thisindicated that, after the first few months of theGST’s introduction, very few consumers wereseeking information on the effects of the NewTax System on the prices of goods and services.After consulting with the Commission, the ACAclosed the website in June 2001.

Working with consumersIn addition to the media activities, publicationsand electronic information for consumersgenerally, the Commission also addressed theneeds of those who may have been subject tofurther disadvantage in the transition to theNew Tax System.

Aboriginal and Torres StraitIslander information strategy

In June 2000 the Commission mailed outmore than 20 000 specially produced GSTinformation kits to indigenous communityorganisations and other relevant agencies andgroups working with indigenous communities.

Follow-up presentations on GST and generaltrade practices issues began in September2000 with visits to indigenous communities inNorthern Queensland, Cape York and the TorresStrait and later to communities across northernWestern Australia and Central Australia. Thevisits dealt with GST price changes and issuessuch as misleading or deceptive conduct, debtorharassment and unconscionable conduct.

The Commission’s dedicated ATSI informationline (1300 303 143) provided GST-relatedinformation to indigenous people and recordedtheir complaints relating to prices under theNew Tax System.

Information strategy for peoplefrom non-English-speakingbackgrounds

In June 2000 the Commission distributedinformation kits on GST pricing in Arabic,Chinese, Greek, Italian, Spanish and Vietnamese.They contained the Everyday Shopping Guidewith the GST, fact sheets, business complianceinformation, a check list on price displays and apoint-of-sale poster for retailers. The kits weremailed to over 10 000 community organisationsas well as being available from the Commission’swebsite. Key publications were also translatedinto Croatian, Macedonian, Russian, Serbianand Turkish and were available from the website.

Following the mailout over 500 communityorganisations were contacted by phone andletters were sent to another 330 organisationsoffering further information. As a result, 5000more GST information kits in the six mainlanguages other than English were sent out.In July an ongoing advertising program was runin each of the six main languages other thanEnglish. Major multicultural newspapers carriedthe advertisements, and the general radiocampaign was translated for broadcast on ethnicradio. The Commission also prepared articleson price changes with the GST and theCommission’s role for various multiculturalcommunity media and journals.

The Commission had staff able to take callsto the GST Price Line in languages other thanEnglish. The Commission also used thetelephone interpreter service.

Information for the vision impaired

The Commission worked with Vision Australia toprovide GST pricing information to those withvision impairment. Various articles on topical andemerging GST pricing issues were provided forbroadcast on radio.


National GST ConsumerConsultative Group

The National GST Consumer Consultative Groupconsists of representatives from consumerorganisations from each State and Territory.

The group continued to assist the Commissionin its consumer protection strategies includingproviding better access to Commissioninformation for people from NESB and ATSIcommunities and those with vision impairment.The Commission reported on enforcement andmonitoring activities, and received feedbackfrom the group on the effectiveness of theCommission’s activities.

Working with businessThe Commission continued to work closelywith industry and business associations, othergovernment agencies and individual operatorsto ensure understanding of the New Tax Systemand compliance with the price exploitationguidelines. The Commission’s Small BusinessUnit continued its outreach program, workingwith small business operators around thecountry.

Abolit ion of f inancial institutionduty and stamp duty on quotedmarketable securities

Financial institutions duty (FID) and stamp dutyon quoted marketable securities were abolishedon 1 July 2001 as part of the New Tax Systemchanges. The Commission ran a comprehensiveeducation campaign to inform consumers andthe affected industry sectors of the effect ofthese tax changes.

Liaison with industry sectors

Retail industry

The Commission liaised extensively with theretailing industry to ensure compliance with theCommission’s pricing guidelines. Particular focuswas given during July 2000 to pricing displays,including dual ticketing, grace periods for dualprice displays and the scanning code of conduct.

Discussion with the industry covered businesspractices such as supplier rebates. Before theintroduction of the New Tax System, supplierrebates were used to reduce the amount paid

for a good by a retailer — this would lead to areduction in the Wholesale Sales Tax (WST) thatapplied to the good. Retailers were concernedthat the effect of the rebate before 1 July 2000(including the WST benefit) should be includedwhen calculating the net dollar margin. TheCommission accepted this view and the pricingguidelines were amended to specifically addressthis issue.

Financial services industry

The Commission held discussions with allnational and major regional banks about pricechanges including proposed broad changes tofees and charges, especially merchant servicefees. The Commission sought to ensure thatthe extent and incidence of any changes tofees and charges were consistent with the priceexploitation guidelines and that consumersreceived the full benefit of any indirect taxreductions.

Commercial and retail leasing

Liaison with representatives of the commercialand retail lease market promoted practicalsolutions to issues raised. These includedlong-term contracts and the passing on ofcost savings, rentals linked to the consumerprice index and the treatment of outgoings.The Commission released two publications:News for Business 16 and 17, addressingsome of the major issues facing the sector.

Road transport

The road transport industry is one in whichsignificant savings from the New Tax Systemwere expected resulting from direct and indirecttax changes. The Commission was especiallyconcerned that repriced haulage fees reflectedcost savings from the introduction of the Dieseland Alternative Fuel Grants Scheme (the on-roadscheme).

To ensure compliance with the pricing guidelines,the Commission held discussions with theindustry, including the Australian TruckingAssociation, State-based industry groups andindependent trucking operators and sub-contractors. The Commission also producedNews for Business 7 — Pricing issues for thetrucking industry to help operators identify thesavings and how to treat them under the pricingguidelines.


Commercial residential accommodation

The amount of GST payable by users ofcommercial residential accommodation, whichincludes hotels, motels, hostels, boardinghouses, caravan parks and similar premises,depends on whether the stay is short-termor long-term. To help people understandthis the Commission produced GST Talk 9— Commercial residential premises —accommodation charges. The Commissionalso attended industry seminars.

The Commission is currently completing anaudit into the pricing structures of caravanparks, mobile home parks and boarding housesto determine whether operators have increasedtheir profit margins as a result of the taxchanges.

Government

The Commission liaised with State and TerritoryTreasury departments to promote compliancewith the pricing guidelines in governmentcontrolled business activities. The Commissionsought commitments from State and Territorygovernments that New Tax System savings wouldbe monitored on an ongoing basis. When thesesavings are greater than those adjusted forunder the Intergovernmental Agreement on theReform of Commonwealth-State Relations, thebenefit of the savings are to be passed on aslower prices to consumers.

Industries subject to pricing regulation

Many industries are subject to Commonwealthor State regulation that affects their abilityto alter prices, for example electricity, gas,telecommunications and postal services.The Commission worked closely with Stateand Territory regulators to ensure that thepricing guidelines were applied to pricingdecisions in these industries.

Public transport

Public transport is generally regulated by eitherState or Territory Departments of Transport orby independent State and Territory regulators.The Commission met with regulators acrossAustralia to ensure that the benefits of the NewTax System and the Diesel Fuel and AlternativeGrants Scheme were offset against the GSTpayable on fares.

Taxis

The Commission worked closely with Stateand Territory taxi regulators to ensure that theguidelines were followed when determining GST-inclusive taxi fares. As a result, price changeswere less than 10 per cent in all jurisdictionsbecause of the embedded savings that the taxiindustry received following the abolition of WSTon vehicles, tyres and parts, and the availabilityof input tax credits for fuel.

The Commission also participated in theATO Industry Partnership (taxi industry) andproduced News for Business 4 — taxi industrywhich addressed industry specific issues in thecontext of the New Tax System.

Public compliance commitmentsA public compliance commitment (PCC) is avoluntary commitment, signed by the chiefexecutive officer of a corporation, stating thatthe corporation is committed to complying withthe Commission’s price exploitation guidelines.It is an important element in the promotion ofcompliance generally as big business can ofteninfluence market prices and provide a lead forsmaller businesses.

The statement is the culmination of thecompany’s discussions with the Commissionabout the application of the pricing guidelinesand its re-pricing methodology. This processaimed to identify and address potentialproblems and increase public confidencethat a company’s behaviour was consistentwith the guidelines.

A PCC establishes an effective liaison andinformation reporting regime, which minimisesa corporation’s risk of breaching the priceexploitation provisions of the Act. It assures thecommunity and the Commission that no unfairadvantage will be taken of the New Tax Systemchanges to increase margins, although a PCCwill not indemnify the issuer from enforcementaction if circumstances warrant such action.

By the end of July 2000, 35 companies frommany industry sectors had public compliancecommitments on the Commission’s PublicRegister. The Commission regards this as amajor achievement in its efforts to encouragecompliance with the New Tax System legislation.Below is the full list and their PCCs can be


viewed on the Commission’s website<http://www.accc.gov.au> in the publicregister section.

Ansett Holdings Ltd

Australia & New Zealand Banking Group Ltd

Australia Post

Berri Ltd

BOC Gases Australia Ltd

British American Tobacco Australasia Ltd

Burns, Philp & Company Ltd

Cable & Wireless Optus Ltd

Capral Aluminium Ltd

Coca-Cola Amatil Ltd

Coles Myer Ltd

Commonwealth Bank of Australia

David Jones Ltd

Department of Infrastructure — Victoria

Ergon Energy Ltd

Estee Lauder Pty Ltd

GE Australia

Goodman Fielder Ltd

Imperial Tobacco Australia Ltd

Lend Lease Corporation Ltd

National Australia Bank Limited

Qantas Airways Ltd

Rebel Sports Ltd

Strathfield Group Ltd

Stryker Australia Pty Ltd

Sydney Airport Corporation

Telstra Corporation Ltd

The Broken Hill Proprietary Company Ltd

Toll Holdings Ltd

Tricon Restaurants Australia Pty Ltd

Unilever Australia Ltd

United Distillers and Vintners (Aust.) Ltd

Westfield Holdings Ltd

Westpac Banking Corporation

Woolworths Ltd

The commitments generally require thecompanies to report to the Commission everysix months or upon request. Such reports mayinclude independent verification of theinformation provided.

The total number of inquiries and complaintsrelating to these companies during 2000–01was about 9300. About 5400 of these, ornearly 60 per cent, were received in theSeptember quarter of the year. This was fewerthan expected given the size of the companiesconcerned and the consumer market focus ofmany of them. Inquiries and complaints havestayed at lower levels since September 2000.

The reports confirmed that the companieshad complied with the Commission’s priceexploitation guidelines and no complianceissues arose from the review of the reports.

A common theme in discussions with thecompanies was that the tax changes were nolonger a factor in their pricing decisions andthat pricing had returned to a normalcommercial basis. Most indicated that therewould be no further price increases for theirproducts as a result of the New Tax System.

The benefits of the public compliancecommitments include:

• heightened corporate awareness andunderstanding of their obligations andresponsibilities in relation to pricing underthe New Tax System;

• greater overall compliance with the New TaxSystem price exploitation legislation and theCommission guidelines due to the influentialposition of the companies in their industries;

• the resolution of emerging issues in a timelyand cost-effective manner with a high degreeof compliance from participatingorganisations;

• consistency in the complaints handlingprocess, with a Commission liaison officerappointed to each company with a publiccompliance commitment; and

• assistance with the Commission’s pricemonitoring role.


Price monitoring


• Appropriate action taken to ensure no businesstakes unfair advantage of A New Tax System.

The Commission has an extensive price-monitoring program in place. It also draws onmany other sources of information about pricechanges and pricing behaviour. These includethe consumer price index (CPI) and AustralianBureau of Statistics’ wholesale price indexes,commercially provided price informationdatabases for specific products at the wholesaleand retail levels, large corporations with publiccompliance commitments and the authoritiesthat regulate industries such as electricity, gasand public transport. Complaints by consumersand businesses through the GST Price Line alsocontributed to the Commission’s information onprice changes associated with the New TaxSystem.

Information gathered about price changes andpricing behaviour provided the basis for theCommission’s estimates on price movementsand helped identify where price exploitationoccurred.

The general survey The Commission undertook several retail pricesurveys on price changes and trends across awide range of household goods and services.They also helped identify cases of potentialprice exploitation.

The general survey involved collecting prices onidentical products at different times. The size ofthe survey was substantial. For example, about320 000 price comparisons were made betweenthe survey in May 2000 (the pre-GST base)and the latest survey in May 2001. Prices werecollected from around 10 000 retail outletsin 115 locations (capital cities, major regionalcities and towns) in all States and Territories.The Commission conducted the general surveyseven times during the GST transition period,including four during the reporting year —August and October 2000 and February andMay 2001.

The results (see table 2.1) indicate thatrepricing associated with the New Tax Systemoccurred predominantly in the Septemberquarter 2000 and was broadly within theCommission’s estimates. Comparing the changein prices between the May and August 2000surveys provides the best indication of theeffects of the tax changes alone as it was longenough to allow retail prices to be adjusted forthe tax changes, but not long enough for non-tax factors to have much influence. Nevertheless,other factors were expected to contribute tochanges in some product prices during theperiod.

The weighted average price change over thethree months between the May 2000 andAugust 2000 surveys was +2.6 per cent.Weighted on the same basis, the Commission’sestimate of the effects of the New Tax System bythe end of 2000 was an increase of 3 per cent.The weighted average price change over 12months between the May 2000 and May 2001surveys, by which time non-tax factors weregenerally determining prices outcomes, was+5.7 per cent.

The ‘fresh food’ and ‘alcohol and tobacco’product groups show the largest price increasessince the May 2000 survey. Prices of fresh foodproducts — untaxed under both the WST andthe GST — increased by 13.4 per cent onaverage from May 2000 to May 2001. Factorsunrelated to tax changes affected the supplyprices of fresh food products, including floods ingrowing areas during November 2000, extremeheat conditions over summer 2000–01 creatingpoor growing conditions for many crops, andincreased domestic meat prices following strongexport demand.

The prices of alcohol and tobacco productsin the survey increased by 11.9 per cent onaverage from May 2000 to May 2001, mainlyreflecting the initial price increases associatedwith the tax changes and the impact of theAugust 2000 and February 2001 exciseindexation adjustments.

The samples in the general survey are largeenough to analyse differences in price changesbetween metropolitan (capital city) and regionalareas. The data indicates that price changesresulting from the New Tax System were fairlyconsistent across geographical locations eventhough price levels may be quite different.The results also showed no substantialdifferences in the average price changes betweenthe States and Territories, although again pricesmay be at different levels.

The Commission was also interested in howsmaller businesses changed their pricescompared with larger retailers and retail chains.


Product group Estimated New Survey’s average ChangeTax System-effect on 3 months 12 months

prices by end 2000

% % %

Clothing and footwear 7.5 3.2 5.7

Fresh/unprocessed food -1.1 3.2 13.4

Household furnishings

and equipment 2.2 1.5 3.4

Household services and

operation 2.2 2.3 4.9

Personal care 1.5 -1.3 1.2

Recreation — audio visual -3.6 -5.0 -7.1

Recreation — other 3.2 2.2 1.4

Processed food and beverages -0.3 0.2 3.4

Meals out and takeaway food 9.2 7.9 10.2

Miscellaneous goods and services 3.6 3.1 6.4

Medical and health 5.4 5.4 7.8

Motor vehicle expenses 1.9 1.0 7.2

Alcohol and tobacco products 6.0 7.1 11.9

All groups weighted average 3.0 2.6 5.7

Table 2.1. Average price changes, May 2000 to August 2000 and to May 2001

There was some evidence from monitoring theWST rate reduction in 1999 that the level ofcompliance was higher among large businesses.The Commission responded to this perceiveddiscrepancy with an information campaign andissued the Pricing kit for small business to helpthe sector better understand repricing andcomply with the law. The differences in pricechanges between small businesses and chainsin the reporting year were insignificant. Thissuggests the information campaign was effectivein assisting small businesses better understandthe pricing implications of the 1 July 2000 taxchanges.


Monthly supermarket surveyThe Commission conducted monthly surveys ofsupermarket prices from January 2000, coveringmore than 300 supermarkets nationwide, with aproduct basket of over 100 commonlypurchased items.

Comparisons were based on changes betweenprices averaged over two months. This reducedvolatility from month to month resulting fromchanges in supermarkets’ price ‘specials’. Theweighted average price change over the threemonths between May/June (the pre-GST base)and August/September 2000 was -0.1 per cent.If fresh fruit and vegetable items which havevolatile supply and demand characteristics areexcluded, the average change was zero. Over the12 months between May/June 2000 and thelast survey of 2000–01 in May/June 2001, theweighted average price change was +6.0 percent. When prices of fresh fruit and vegetableswere removed, the increase was 4.1 per cent.With the passing of time since 1 July 2000non-tax factors have increasingly determinedprice changes.

Consumer price index The Commission analyses official statisticsproduced by the Australian Bureau of Statistics.In particular, data from the CPI measures pricemovements in a basket of goods and servicesconsumed by capital city households.

While the methodology used by the ABS tomeasure CPI price changes is different to thatused by the Commission in its retail pricesurveys, movements in prices of products in theCPI ‘basket’ have been broadly consistent withthe Commission’s estimates of the effects of thetax changes on prices. The change in the CPI‘All Groups’ in the September 2000 quarter was+3.7 per cent — followed by +0.3 per cent inthe December 2000 quarter — consistent withthe bulk of the effect of the tax changesoccurring in the September quarter. The CPIincreased by 6 per cent over the four quartersending June 2001 by which time non-tax factorswere clearly influencing general price outcomes.

General impact of the New TaxSystem on prices The results of the Commission’s surveys sincethe September quarter 2000, together with CPIoutcomes, confirm that the impact on pricesoccurred mainly in the first quarter of 2000–01.This is consistent with the Commission’sestimates. No evidence of significantopportunistic pricing to increase marginswas found.

Although prices have risen since the initialimpact during the September 2000 quarter,average increases have generally been in line withinflation trends that existed before the New TaxSystem. An analysis of CPI data shows that theincrease in the CPI ‘All Groups excluding Food’index over the three quarters ending Junequarter 2001 (after the primary impact of thetax changes) was 1.7 per cent.1 The averageincrease in this index over the correspondingthree-quarters for the two years before 1 July2000 was 1.4 per cent and for the previous sixyears was 1.6 per cent.

Industry-specific monitoring

Motor vehicles

Before the New Tax System, nearly one quarterof all WST revenue came from the sale of newmotor vehicles. Accordingly, passing on theabolition of WST on vehicles has beena major monitoring issue. Notices were issuedunder s. 75AY(2)(a) of the Act to a sample ofmotor vehicle retailers to obtain data aboutpost-GST pricing and to help assess whethersavings were reflected in their prices.

The Commission concluded that NTS savingswere reflected in new motor vehicle prices.No evidence of price exploitation in relationto new motor vehicle prices was found.

Road freight transport

The Commission continued to monitor theimpact of the New Tax System on the roadfreight transport industry. It obtainedinformation from major road transport firmson the pricing of services to major customers.Initially this involved an analysis of July 2000

1 Food is excluded because of the volatility of fresh food prices due tothe effects of climatic events and seasonal factors on supply.


pricing structures, which the Commissionassessed as reflecting NTS savings. Additionalinformation was sought in November 2000 afterseveral road freight transport businesses hadincreased or were about to increase charges tocustomers.

Since July 2000 freight rates have risen becauseof increases in diesel fuel prices. Analysis ofinformation provided by major firms suggeststhat NTS savings are still reflected in pricingstructures.

Enforcement



• Appropriate action taken to ensure no businesstakes unfair advantage of A New Tax System.

• Appropriate enforcement action taken andgoals achieved, i.e. stopped unlawful conduct,compensation gained for loss or damage,compliance with the Act, pecuniary penalty.

Price exploitation remains a Commissionenforcement priority throughout the prescribedtransition period for the New Tax System. Theprinciple aim of the Commission’s enforcementactivities is to promote compliance. During theyear the Commission’s enforcement workconcentrated on the following major areas:

• GST being charged on GST-free items;

• businesses not passing on indirect taxbenefits, such as the abolition of WSTor the reduction in petrol excise, in full;

• businesses misrepresenting the total priceof goods or services (GST-exclusive pricedisplay);

• changes in prices outside the Commission’sestimates of the effects of the tax changes;and

• increases in prices which reflect the full impactof the tax changes on the CPI where the GSTalso was previously imposed (CPI-basedincreases may need to be discounted forthe effect of the GST to comply with theCommission’s rule that businesses should notincrease their net dollar margin as a result ofNew Tax System changes alone).

The Commission aims to quickly resolve GST-related matters to minimise confusion andconsumer losses. The Commission thereforeaccepted court enforceable undertakings, ratherthan taking direct court action, when theconduct was not obviously deliberate or blatant.When businesses made inadvertent mistakes andvolunteered this information to the Commission,this was taken into account in determining anyenforcement action and, if appropriate, theremedies.

Since July 1999 the Commission has investigatedover 6200 GST-related matters, obtainingrefunds of nearly $10.1 million on behalf ofapproximately 990 000 consumers. Since 1 July2000 the Commission has instituted courtproceedings in five GST related matters and hasaccepted 31 court enforceable undertakings.These matters are reported in detail in the ACCCJournal throughout the year. Summaries of majormatters are outlined below. Commission staffinvestigated another 6000 matters, most ofwhich are now resolved with 575 in the processof being resolved.

Court cases and undertakings

Video Ezy and ors

On 25 May 2001 the Commission institutedproceedings in the Federal Court, Sydney,against Video Ezy Australasia Pty Ltd, allegingthat it had engaged in price exploitation andhad made misleading representations about theintroduction of the GST. The Commission alsojoined an associated company and variousdirectors and senior managers to the action.On 27 April 2001 the Commission and VideoEzy settled these proceedings. Video Ezyconsented to Federal Court orders in which thecourt made declarations, granted permanentinjunctions, ordered Video Ezy to offer discountsand refunds in Townsville, implement a tradepractices compliance program and contribute tothe Commission’s costs. The Commission agreedto discontinue its price exploitation claims.

Clarendon Homes (NSW) Pty Ltd

The Commission received several complaintsfrom customers of Clarendon Homes (NSW)that sales staff had advised them in mid-1999to early 2000 that their contracts for theconstruction of new homes were GST-inclusive.


The customers alleged Clarendon subsequentlyinvoiced them for an additional GST amount.The Commission was concerned that suchconduct may be misleading or deceptive andraised its concerns with Clarendon. Thecompany agreed to waive the charges totallingabout $1.09 million for 208 new homebuyers.Clarendon provided the Commission with acourt enforceable undertaking to write toaffected customers advising them that their GSTcharges had been waived and that it would enterinto a trade practices education program.

Gift deductible entities

Following a revision by the ATO of the meansfor assessing the application of GST to suppliesby several charities and gift deductible entities(GDEs), it was found they had collected GSTon supplies that were subsequently deemedGST-free.

The Commission established guidelines for theseentities to adopt when managing the refundprocess. Refunds of over $2.5 million have beendisbursed including approximately $218 000 bythe Victorian Museum and $393 000 by theVictorian Zoo.

Franklins Supermarkets

Franklins offered discounts valued at more than$150 000 after inadvertently charging GST on17 GST-free goods, including No-frills orangejuice.

Franklins agreed to discount the normal retailprices of the relevant products by 11 per centfor three weeks, which was equal to the periodof the overcharge. Franklins also agreed toprovide a full refund of the GST incorrectlycharged to all consumers who had retainedreceipts for their purchases of these products.

Gateway Pty Ltd

Gateway Pty Ltd provided refunds totalling$27 900 to consumers who bought certainGateway personal computers in early May 2000,after the Commission raised concerns aboutpre-GST advertising.

In May 2000 Gateway ran a newspaperpromotion for personal computers which offeredsavings ‘before the GST’. The Commissionbelieved that consumers may have been misledthat prices would be higher after the GST.

Oasis Credits Pty Ltd

Oasis Credits Pty Ltd (trading as HoldfastFinance Corporation) provided court enforceableundertakings after charging GST on hirepurchase contracts entered into before 1 July2000. Under ATO tax provisions such contractsare GST-free as the GST liability arises on thesupply of the physical goods. Therefore,payments made after 1 July under theseagreements do not attract GST.

In providing the undertaking Oasis Creditsrefunded or credited over $30 000 to 170customers and agreed to implement a tradepractices compliance program.

Goldy Motors

The Commission instituted proceedings inthe Federal Court of Australia allegingmisrepresentations and false and misleadingconduct after Goldy Motors ran anadvertisement encouraging consumers to buyvehicles before 30 June 2000 because it wastheir ‘Last chance to buy ... GST FREE !!’. TheCommission believed this advertisement mayhave misled consumers because the price of newvehicles was expected to, and subsequently did,fall with the introduction of the GST on 1 July2000.

The Federal Court found in favour of theCommission and granted orders includingdeclarations that Goldy Motors had breachedthe Act; injunctions preventing Goldy Motorsfrom engaging in similar conduct in the future;corrective advertising; refunds or an alternativeform of appropriate compensation forconsumers induced by the advertisement intopurchasing a car and/or applying for financebefore 30 June 2000 as a result of theadvertisement; and costs against Goldy Motors.

The Commission also received court enforceableundertakings for similar ‘Beat the GST!’ motorvehicle campaigns from Lennock Phillip Pty Ltd,Werribee Motor Traders Pty Ltd, Relyt Pty Ltdand S&S Thomson Investments Pty Ltd. TheCommission also accepted an administrativesettlement from Lander Toyota after thecompany miscalculated the effect of theabolition of WST, resulting in consumerrefunds and other compensation of $40 000.


Electrodry Carpet Dry Cleaning

The Commission instituted proceedings againstA Whistle and Co (1979) Pty Ltd, trading asElectrodry Carpet Dry Cleaning, allegingmisrepresentations and false and misleadingconduct under ss. 52 and 53(e) of the TradePractices Act.

The allegations concerned a brochuredistributed by Electrodry in Queensland, NewSouth Wales, Victoria, South Australia andWestern Australia, promoting the GST-exclusivecomponent of the price in very large prominentprint with the total price including GST in muchsmaller print. The Commission alleged that thebrochure was likely to mislead consumers aboutthe total price payable for Electrodry Carpet DryCleaning services.

The Commission obtained consent ordersproviding declarations, corrective advertising,injunctions preventing future similar conduct,and an injunction directing Electrodry toimplement a trade practices compliance program.

Australian Leisure & Hospitality Group

Between 1 July 2000 and 28 July 2000 theAustralian Leisure & Hospitality Group (ALHGroup) incorrectly applied the Wine EqualisationTax to approximately 20 alcohol products,resulting in consumers being overcharged.

In accordance with its trade practicescompliance program, the ALH Group immediatelynotified the Commission of the conduct andconfirmed that it had removed all affectedproducts from sale. ALH Group undertook toprovide a full compensation package and a four-week discount period during which the affectedproducts were marked down by 15 per cent.The total cost of the conduct for the 28-dayperiod to consumers was $12 322. The directbenefit to consumers of the settlement wasestimated to be more than $30 000.

Islander’s Board of Industry & Service (IBIS)

The Islander’s Board of Industry & Service (IBIS)operates 14 general stores in the outer TorresStrait Islands, selling general items includinggroceries. The Commission was concernedthat when implementing the New Tax Systemchanges, IBIS had increased some of its pricesmore than it should have (up to 22 per cent,including on GST-free items).

IBIS reviewed prices to ensure all tax savingswere correctly passed on to its customers.It also undertook to provide refunds tocustomers, discounts of 5 per cent on all itemsfor one month, corrective apologies in all stores,and to implement a trade practices complianceprogram.

Rod Turner Consulting Pty Ltd

The Commission instituted legal proceedings on3 July 2000 in the Federal Court alleging thatRod Turner Consulting Pty Ltd wrote to a client’stenant stating that from 1 July 2000 an extra10 per cent would be payable on rent but thelandlord was including a GST component in theincreased rent from 20 June 2000. The firm alsorepresented that water rates for the rentedpremises would carry a GST cost to the landlord.The Commission alleges these were false ormisleading statements about the price ofservices. It also alleges misleading and deceptiveconduct because residential rents and waterrates are GST-free.

The Commission seeks declarations that theconduct is unlawful, injunctions restraining therespondents from making similar statements andorders that the respondents take correctiveaction and apologise to the tenant concerned.This matter is still waiting for a trial date.

Discount Electrical Centre (Australia) Pty Ltd

Discount Electrical placed an advertisement andissued a catalogue containing the statement‘Beat the GST’ when the televisions and DVDplayers in the advertisement and catalogue werepreviously subject to WST of 22 per cent andthe Commission believed prices would decreaseas a result of the tax changes.

The Commission instituted proceedings on16 June 2000 in the Federal Court. On 13 July2000 Discount Electrical gave undertakings thatit would not make representations that the priceof televisions and DVD players would increase.The company also agreed to compensatecustomers who suffered any loss as a resultof the representations, to place correctiveadvertising and to institute a trade practicescompliance program. Discount Electrical wasordered to pay the Commission’s costs.


Cuisine Courier Pty Limited

On 21 September 2000 Cuisine Courier PtyLimited, a restaurant delivery service operatingin Sydney and Melbourne, gave the Commissioncourt enforceable undertakings to stopadvertising prices that did not include GST andto carry out other corrective measures such ascorrective advertising. In September 2000 somemenu booklets still did not contain GST-inclusiveprices and associated fees. It also undertookthat future advertising and promotional materialwill contain GST-inclusive menu prices andassociated fees and that it would implementa trade practices compliance program.

Sun Imports Pty Ltd

In December 2000 the Commission accepted ans. 87B undertaking from Sun Imports Pty Ltd toamend its post-GST pricing so that it reflectedsavings resulting from New Tax System changes;to issue new invoices to its wholesale customerswith the correct pricing; to ensure thatconsumers who had paid higher prices wererefunded; and to place corrective notices in twoof its stores. Sun Imports had increased theprice of tanning products by a full 10 per centdespite the removal of a 22 per cent wholesalesales tax which, in the absence of other factors,should have resulted in a reduction in price.

Signature Security Group Pty Limited

Proceedings were instituted on 19 March 2001in the Federal Court, Sydney, alleging thecompany advertised prices of security systemsexcluding GST. The Commission is seeking courtorders including injunctions restraining Signaturefrom making similar misrepresentations in thefuture; compensation for consumers anddeclarations that Signature contravened the Act.Directions hearings were held on 11 April and15 June 2001 in the Federal Court, Sydney.The matter is continuing.

Commodore Homes (WA) Pty Ltd

On 5 April 2001 in the Federal Court, Perth,the Commission alleged that in the lead up tothe GST, Commodore Homes represented topotential homebuyers that their homes would bebuilt by 1 July 2000 and they would thereforeavoid having to pay GST. The Commission alsoalleges that the manner in which CommodoreHomes tried to recover the GST from some ofthe homebuyers breached the unconscionableconduct provisions of the Act.

The Commission is seeking declarations, ordersrestraining Commodore Homes from engagingin such conduct in the future, corrective publicnotices, implementation of a trade practicescompliance program, and refunds to thoseaffected.

DCH Legal Group

On 10 July 2000 the Commission acceptedenforceable undertakings from DCH LegalGroup over advertisements in a Perth newspaperregarding the effect of the New Tax Systemon legal fees for divorce proceedings. The adswere potentially misleading and deceptive.The undertakings included an acknowledgmentthe representations may have misled consumers;terms that the group would avoid engaging insimilar conduct in the future; correctivenotices; compensation to consumers; andimplementation of a trade practices complianceprogram.

Aus-Care Townsville, Aus-Care Cairns, Aus-Care

Upper Mt Gravatt, Aus-Care Indooroopilly

On 25 September 2000 the Commissionaccepted court enforceable undertakings fromfour medical centres in Queensland. Theundertakings provide refunds and apologies toany patients who were charged GST on hepatitisB vaccinations for children in circumstances thatmeant they should not have been. The fourmedical centres undertook to ensure that theprice of hepatitis B vaccinations would notinclude a GST component when they shouldnot and to review their billing practices to ensurethere is no GST component on any GST-freeservices.


Ferry Real Estate (Qld) Pty Ltd, Ferry Property

Management Pty Ltd, Castorina Investments Pty

Ltd

On 30 November 2000 the corporate ownersof Ferry Real Estate (Townsville) provided courtenforceable undertakings to the Commissionafter investigations into management feeincreases to client landlords in May 2000.The complaints were about a rise in Ferry’s totalproperty management fees from 7.5 per cent to8.8 per cent. The undertakings included sendingcorrective letters of apology to landlord clientsenclosing credits of amounts equivalent to1/11th of the fees paid for the two monthsbefore 1 July 2000.


Output 1.1.1: The proper administrationand enforcement of the Trade Practices Act1974, the Prices Surveillance Act 1983and related laws; and




• Appropriate enforcement action taken andgoals achieved, i.e. unlawful conduct stopped,compensation gained for loss or damage,compliance with the Act, pecuniary penalties.


• Publication of new and amended provisionsof the Trade Practices Act and the new ACCCprocedures.

• Responded to Government inquiries oncompetition and consumer protection issuesincluding references under s. 28 of the TradePractices Act relating to dissemination ofinformation, law reform and research.

• Actively participated in the development ofeffective competition and consumer protectionlaws internationally.

The Commission’s compliance and enforcementactivities during the year were heavily influencedby its role under the New Tax System (seechapter 2). Within that environment theCommission still remained focused on its keyenforcement and compliance work directedat promoting competition and fair trading.The Commission maintained a strong litigationworkload with some 40–50 matters before thecourts over the year.

Achievingcompliance

C h a p t e r

3

CHAPTER CONTENTS

Restrictive trade practices p.37— court actions p.38

Consumer protection p.41— court actions and undertakings p.45

Product safety p.49— court actions and undertakings p.52

The professions p.53— court actions and undertakings p.55

E-commerce p.57— court actions and undertakings p.59

Small business p.61— court actions and undertakings p.63

International activities p.64


This chapter outlines the various compliance andenforcement activities undertaken during theyear. They are grouped according to the typeof activity: restrictive trade practices, consumerprotection and small business. Because the

Misleading and deceptive

Misrepresentation — composition history etc

Misrepresentation — grade quality standard value

Misrepresentation — performance characteristics etc

Misrepresentation — sponsorship etc

Misrepresentation — place of origin

Misrepresentation — suitability for purpose

Misrepresentation — employment

Offering gifts and prizes

Misleading home business activities

Misleading reps about business earnings

Harassment and coercion

Pyramid selling

Unsolicited services

Product safety standards

Goods causing injuries

Agreements lessening competition

Primary boycotts

Price fixing

Secondary boycotts

Misuse of market power

Exclusive dealing

Resale price maintenance

Commercial unconscionable conduct

Consumer unconscionable conduct

Unconscionable conduct in business transactions

0 2 4 6 8 10 12 14 16 18 20

Contravention of industry codes

Anti-competitive conduct — telecommunications

Figure 3.1. Matters at court 2000–01

Figure 3.2. Top five industries pursued 2000–01

7%

6%

5%

4%

3%

2%

0

1%

0%Telecommunications

services 7%Domestic appliance

retailing 6%Computer consultancy

services 4%Automative fuel

retailing 3%Supermarket and grocery stores 3%

professions and e-commerce issues are ofincreasing importance to the Commission,and because they cross jurisdictions, theyare discussed separately within the consumerprotection section.


An important private action was the MelwaysPublishing Pty Ltd case. As recorded in lastyear’s annual report the Commission wasgranted leave to intervene in this matter.The court accepted in principle theCommission’s submissions about the applicationof s. 46 and in particular how the courts shouldinterpret taking advantage of market power.The Commission believes this gives a clearerdirection about how the misuse of marketpower provision should be interpreted.

Global cartel activity was also a major focus ofthe Commission’s enforcement work during theyear. The Commission has publicly proposedthat hard core cartel activity by largecorporations should be subject to criminal aswell as civil sanctions. Criminal sanctions applyin many overseas jurisdictions, including someof Australia’s major trading partners such asthe United States, Korea, Japan and Canada.

Restrictive trade practicesSeveral court judgments were particularlysignificant for the Commission in the areas ofmisuse of market power, price fixing and cartelactivity, and unconscionable conduct.

Two judgments were matters instituted by theCommission — Boral Ltd and Rural Press Ltd— where the Federal Court found that bothcompanies had misused their market power inbreach of the Act. See full reports on p. 40 and41. In the Boral case the Full Court found thatits below-cost pricing breached s. 46 of the Act.The court endorsed the Commission’s approachand recognised that below-cost pricing can bea misuse of market power. The Full Court alsorejected the need for recoupment of losses asa necessary element in establishing predatorypricing. Boral is currently seeking leave to appealto the High Court.

Figure 3.3. Top five conduct issues pursued 2000–01

7%

6%

5%

4%

3%

2%

0

1%

0%

7%

Price exploitation in relation to the New Tax

System (GST) 8%

Misrepresentation — price 7%

Misleading or deceptiveconduct: advertising —

print 6%

GST price general 4% Cash price to be stated in certain circumstances 4%

8%


The Commission was successful in proceedingsagainst three multinational vitamin companieswho, through a global cartel, set prices foranimal feed vitamins in the Australian market.The Federal Court awarded record penaltiestotalling $26 million against Roche VitaminsAustralia Pty Ltd, Aventis Animal Nutrition PtyLtd and BASF Australia Ltd. The Commissionis currently investigating other global cartels,some concurrently with overseas regulators.The Commission’s approach to cartels will beaggressive and its cooperative efforts withoverseas agencies will help detect and prosecutethem when they affect the Australian market.

The Commission was also successful in pursuinga fire protection equipment cartel in Queenslandwhere the Federal Court imposed finestotalling $15 million against a large number ofcorporations and individuals, including TycoAustralia Pty Ltd. Another domestic cartelinvestigated was an electrical distribution andpower generation cartel. The Federal Courtimposed fines of $7 million against onerespondent, Alstom, and $150 000 againsta senior executive. Further corporations andindividuals involved will appear before theFederal Court in coming months.

The Commission took action for price fixingagainst the National Australia Bank in relationto credit card interchange fees. This action waswithdrawn when the Reserve Bank designatedcredit card interchange fees under the PaymentSystem Regulation Act.

An important decision by the Full Federal Courtin Sydney upheld a claim by the Commissionthat its powers under s. 155 to gain access todocuments should extend to certain documentssubject to legal professional privilege.This means that a person or company beinginvestigated by the Commission cannot refuseto provide information by relying on legalprofessional privilege.

The Commission’s commitment to ensuring thatthe benefits of trade liberalisation are passed onto consumers is apparent in its handling of the1998 amendments to the Copyright Act allowingparallel importation. In its proceedings againstUniversal Music Australia Pty Ltd and WarnerMusic Australia Pty Ltd, the Commission alleges

the corporations tried to prevent retailers,and ultimately consumers, gaining access tolegitimate parallel compact disc imports.The Commission recently applied to the FederalCourt to be heard on whether the new anti-circumvention provisions of the Copyright Actprevent consumers from having their Playstationconsoles modified to permit the playback ofimported games and legitimate backup copies.The Commission’s application was made inresponse to proceedings by Sony ComputerEntertainment Australia and other related Sonycompanies against an individual involved inmodifying Playstation consoles.

Court actions

Price f ixing and cartels

Vitamin suppliers

On 1 March 2001, following proceedingsinstituted by the Commission, the FederalCourt imposed recommended penalties totalling$26 million against three animal vitaminsuppliers for price fixing and market sharingin breach of the Trade Practices Act. Penaltieswere imposed against Roche Vitamins AustraliaPty Ltd ($15 million), BASF Australia Limited($7.5 million) and Aventis Animal Nutrition PtyLtd, formerly known as Rhone-Poulenc AnimalNutrition Pty Ltd ($3.5 million).

The companies’ conduct activated a globalanti-competitive agreement betweentheir multinational parent corporations.The Commission’s investigation followedaction by overseas competition agencies.The Commission and the Australian companiesjointly recommended that the court imposepenalties in the amounts set out above.

Queensland fire protection industry

In September 1999 the Commission institutedproceedings in the Federal Court against 18companies and 38 individuals for price fixingand market sharing in the fire protectionindustry in Queensland.

The Commission alleged that anti-competitivearrangements were made at regular meetingsbetween competitors over many years. At thesemeetings, which were referred to by participantsas the Coffee Club, the companies agreed whichof the installation projects out to tender eachwould win, and at what price.


The proceedings involved almost all of theBrisbane-based companies that provided firealarm installation services and fire sprinklerinstallation services between 1992 and 1997,ranging from large multinational corporationsto small local operators.

The series of proceedings were concluded inFebruary 2001 when the last of the respondentswere ordered to pay pecuniary penalties andreceived court injunctions. The total penaltiescame to $14.79 million, and costs of $596 000were awarded against the respondents.

Alstom Australia Limited

In April 2001 the Federal Court imposedcorporate penalties totalling $7 million againstAlstom Australia Limited and an individualpenalty of $150 000 against its managingdirector, Mr RG Elliot, for price fixing and marketsharing. The penalty imposed on Mr Elliot is theequal highest individual penalty awarded by thecourt for contravening the Trade Practices Act.

The court penalties related to the company’sadmitted participation in a cartel of transformermanufacturers to fix or maintain prices andprevent competitive conduct in the markets forpower and distribution transformers. This matterwent before the court in late July and earlyAugust. In respect of the respondents heard atthat time, the judge reserved his decision. Thematter continues against remaining respondents.

National Australia Bank

On 19 April 2001 the Commission’s proceedingson credit card interchange fees against theNational Australia Bank were discontinued.The Commission had commenced proceedingsagainst NAB in September 2000. Although theCommission took action only against NAB, italleged that the price fixing behaviour involvedall the major banks and the credit cardassociations.

The decision to discontinue proceedings wasmade after the Reserve Bank of Australia decidedto use its powers under the Payment Systems(Regulation) Act 1998 to ‘designate’ the creditcard schemes in Australia. By doing so theCommission considered merchants andconsumers would benefit by greater certaintyand faster responses.

SIP Australia Pty Limited and Baker Bros (Aust)

Pty Ltd

On 29 June 1999 the Federal Court awardedpenalties of $60 000, injunctions anddeclarations against Baker Bros and its directorsfor alleged primary boycott, price fixing andresale price maintenance in relation to thesupply of ABAC compressors. Baker Brosagreed to implement a corporate complianceprogram under an enforceable undertaking.The Commission is awaiting judgment in respectof SIP.

DICL fittings and valves industry

In November 1999 Tubemakers of AustraliaLimited and Coastline Foundry (Qld) Pty Ltdwere penalised a total of $1.75 million for theirpart in price fixing and market sharing in themarket for fittings and valves for use withductile iron cement lined pipe. In March 2000Associated Water Equipment Pty Ltd waspenalised $1 million. The case was finalised inJuly 2000 when Geoff Clegg Enterprises waspenalised $100 000 for their part in theconduct. Injunctions were also granted againsteach respondent.

Visy Paper Pty Ltd

In the Federal Court, Sydney, on 18 November1998 the Commission sought orders againstVisy Paper alleging Visy had tried to induceNorthern Pacific Paper to enter into a marketsharing agreement in the collection of recyclablewaste paper. The court dismissed theCommission’s application with costs and theCommission appealed on 29 November 2000.On 10 August 2001 the Full Federal Courtupheld the Commission’s appeal that Visyhad contravened the Act. This is a significantdecision as it ensures businesses cannot escapea liability for collective exclusionary behaviour byinvoking a technicality in s. 45(6) of the Act.

Queensland ice industry

In August 1999 the Commission institutedproceedings against three corporations andeight individuals for price fixing and marketsharing in the supply of ice in south-eastQueensland.

The Federal Court imposed penalties of nearly$200 000. The Commission’s applicationagainst Ansonguard Pty Ltd, Leo Grevis and


Gary Grevis was dismissed. The Commission hasappealed against the penalties handed down toIthaca Ice Works Pty Ltd and Anthony Mee.

Trevor Davis Investments Pty Ltd, Mans Davis

Holdings Pty Ltd, Trevor Davis and Daniel Mans

A penalty of $5000, injunctions anddeclarations were awarded against Trevor Davison 28 June 2001 for alleged attempted pricefixing and attempted inducement to enter a pricefixing arrangement for supplying casual Internetaccess.

Port Hedland panel beaters

On 9 July 2001 the Commission institutedproceedings in the Federal Court, Perth, againstfour panel beating and spray painting businesses(two companies and two sole traders) in the PortHedland region alleging that the businesses wereinvolved in price fixing.

The Commission is seeking declarations,injunctions, orders requiring the implementationof trade practices corporate complianceprograms and attendance at trade practicesseminars, and costs.

Quickcat Cruises (QLD) Pty Limited

In proceedings on 30 March 2001 in the FederalCourt, Brisbane, the Commission alleged thatQuickcat Cruises had entered into a pricefixing agreement with one of its competitors.On 9 April 2001 the Federal Court, Brisbane,made orders by consent against QuickcatCruises (QLD) Pty Limited, includingdeclarations, injunctions and costs.

Secondary boycotts

Maritime Union of Australia

In proceedings instituted in the Federal Court,Sydney, on 14 April 2000, the Commissionalleged that the union and certain officialsunlawfully hindered and prevented vesselssailing from various Australian ports unless theshipowner agreed to use MUA labour to cleanthe holds. The trial is set down for three weeksfrom 15 October 2001.

Misuse of market power

PolyGram (now Universal Music), and

Warner Music

In proceedings begun on 30 August 1999 in theFederal Court, Sydney, the Commission allegedthat the respondent record companies, as wellas some senior personnel, breached the Actin attempting to prevent the importation ofrecorded music after the Copyright Act waschanged to allow for parallel imports.Proceedings were discontinued against MusicIndustry Piracy Investigation Pty Ltd, MichaelSpeck and Adrian Fitz-Alan in March 2001.

Trial commenced on 2 April 2001 andproceedings were discontinued against SonyMusic Entertainment (Australia) Ltd and SonyMusic Entertainment Holdings (Australia) PtyLtd. Sony provided undertakings to the courtwithout admitting liability. Sony also undertookto implement a trade practices complianceprogram. The trial resumes in September 2001.

Boral Ltd and Boral Masonry Ltd (formerly Boral

Besser Masonry Ltd)

In March 1998 the Commission institutedproceedings against Boral Ltd and BoralMasonry Ltd (BML) alleging that BML reducedthe prices for supplying concrete masonryproducts in Melbourne below its manufacturingcosts and continued to do so to drive out anefficient new independent operator, C&M BricksPty Ltd (C&M). After the Federal Court heldthat BML had not contravened s. 46, theCommission appealed to the Full Court of theFederal Court in November 1999. The appealwas heard in February 2000. This time theFull Court unanimously held that BML hadcontravened s. 46 but dismissed the appealagainst Boral Ltd. The Full Court found thatBML had a substantial degree of power inthe concrete masonry products market inMelbourne, had taken advantage of that powerin pricing below manufacturing costs, and thatthis had been done for the purpose of deterringnew entrants and driving competitors out of themarket.

Boral Masonry Ltd has now applied for specialleave to appeal to the High Court of Australia.A hearing date is yet to be set.


Rural Press Limited

On 1 March 2001 the Federal Court, Adelaide,found that Rural Press Limited and its subsidiary,Bridge Printing Office Pty Limited, had misusedtheir market power against a smaller regionalpublisher, Waikerie Printing House Pty Limited.

Justice Mansfield found that Waikerie PrintingHouse, Rural Press and Bridge Printing hadentered into an arrangement to withdrawThe River News published by Waikerie, fromthe Mannum area, thus breaching the TradePractices Act.

He found that Rural Press and Bridge Printinghad substantial market power in the MurrayBridge market for regional newspapers becauseof their financial resources and strength andtheir capacity to immediately carry out thethreat, and had misused their market power bymaking the threat to Waikerie Printing House.

On 7 August 2001 penalties totalling$600 000 were awarded against Rural PressGroup. A total of $70 000 was awarded againstthe general manager of Rural Press’ regionalpublishing division, Mr Ian Law, and its SouthAustralian state manager, Mr Trevor McAuliffe.Penalties of $75 000 were imposed againstWaikerie Printing House and its director, Mr PaulTaylor, for entering into a market sharingarrangement with Rural Press.

Melways Publishing Pty Ltd

The Commission was granted leave by the HighCourt to intervene in a private action concerningthe refusal by Melways Publishing Pty Ltd tosupply a retailer, Robert Hicks Pty Ltd, withcopies of the popular Melway Street Directoryfor resale. The court concluded that thecharacteristics of the particular market inquestion did not preclude firms, with or withoutmarket power, from implementing exclusivedistribution systems.

In coming to that conclusion the High Courtaccepted the Commission’s submission that afirm takes advantage of a substantial degree ofmarket power where its action is facilitated, ormade easier, by possessing that market power,even though the action may not have beenimpossible without the power. In this respectthe High Court confirmed and enhanced the

interpretation of s. 46 initially set down in its1989 decision, Queensland Wire Industriesv BHP.

Resale price maintenance

Colgate-Palmolive Pty Ltd

On 15 November 2000 the Commissioninstituted proceedings in the Federal Court,Melbourne, against Colgate-Palmolive Pty Ltdalleging that between 1994 and 1998 Colgatetried to stop Tasmanian retailer, ChickenfeedBargain Stores, from advertising various Colgatelines at cheap prices. The Commission is seekingcourt orders including pecuniary penalties andinjunctions restraining Colgate from engaging insimilar conduct.

Other

The Daniels Corporation International Pty Limited

and Meerkin & Apel

On 16 March 2001 the Full Federal Courtunanimously upheld the Commission’s claimthat its powers to gain access to information anddocuments under s. 155 of the Trade PracticesAct, are unfettered by any legal professionalprivilege applying to such information anddocuments. On 11 April 2001 the company andlaw firm concerned applied for special leave toappeal to the High Court of Australia. A hearingdate for that application is yet to be set.

Consumer protectionIn addition to the traditional consumerprotection problem areas of product safety,scams and other misleading conduct, andcountry of origin issues, the Commissionfocused on five more areas during the year:expanded cooperation with other governmentagencies, health issues, fine print advertising,e-commerce, and undue harassment andcoercion.

Expanded cooperation with othergovernment agencies

The Commission worked closely with otheragencies responsible for consumer protectionpolicies and regulation to encourage a moreconsistent and efficient message to businessand consumers about both their rights and


obligations. In Australia these agencies includethe State and Territory Fair Trading agencies,ANZFA, the Therapeutic Goods Administration,and the Department of Health and Aged Care.International cooperation involved the membersof the following international organisations:International Marketing Supervisory Network(e-commerce), the Consumer ProtectionCommittee of the OECD, and APEC.

The Commission continued its industryeducation program on the country of originamendments (Trade Practices Amendment(Country of Origin Representations) Act 1998)by expanding its web-based and printedexplanatory materials and conducting trainingseminars in metropolitan and regional locations.

Health

The Commission undertook severalinvestigations into dubious or unsupportableclaims about the health benefits of a range ofdevices and products. For more informationabout health issues, see p. 53.

Fine print advertising

The Commission’s focus on the inappropriateuse of small print has prompted greater industryeducation and investigation of misleadingadvertisements causing significant consumerdetriment. The Commission has institutedcourt proceedings in four matters and acceptedundertakings in two others during the year inareas as diverse as health insurance, generalretailing, car rentals and bread retailing.Consistent with the Commission’s establishedapproach that corrective notices should appearin the same media as the offending misleadingadvertisement, the Commission sought andobtained corrective television advertisementsin the recent Target case (see p. 45).

Undue harassment and coercion

After running education programs for undueharassment and coercion, culminating in thepublication of the guide to undue harassmentand coercion in 1999, the Commissioninvestigated several cases. On 1 August 2000the Federal Court found for the Commissionagainst Cash Return Mercantile Pty Ltd andMrs Sharyn McCasky in the first case takenunder s. 60 (see p. 49). Since then theCommission has instituted proceedings in

two other s. 60 matters: Esanda FinanceCorporation Ltd & Ors and Lux Pty Ltd(p. 48–49). It also accepted enforceableundertakings in a third matter involving KhadPty Ltd, trading as Professionals Edge Hill.

The Commission has continued to encourageindustry self-regulation using codes of conductwhere the necessary pre-conditions for viableself-regulation exist.

E-commerce

The Commission has further developed itsexpertise and capacity to investigate onlineconduct and is rapidly expanding the contentof its own website to communicate moreeffectively to stakeholders. The Commission hascontributed to e-commerce policy debates bothdomestically and internationally. Enforcementinitiatives have included its leadership ofinternational Internet sweep days andparticipation in several cross-jurisdictionalinvestigations, as well as domestic cases.

With its increased funding the Commission haslifted its resources and work in areas involvinge-commerce and computer forensics to assistinvestigations in Internet markets and marketing.For more information about e-commerce seep. 57.

Country of originThe Department of Industry Science andResources (DISR) provided funding of $410 000to the Commission for publications, promotionalactivities, an Internet presence, legal advice andenforcement action.

About $180 000 has been spent.The $230 000 balance will be used to dothe following:

• Convene and lead working parties to visitmanufacturers and produce guides for theseindustries: textile, clothing and footwear;electrical and whitegoods; foods andbeverages; furniture and furnishings; and toys.

• Set up a separate interactive webpage on theACCC website. The page is up and runningand includes a frequently asked questions siteand an interactive facility that allows inquirersto enter information about their products todetermine how they rate in terms of thedefences.


• Include inserts in trade journals covering theabove targeted industries.

• Monitor investigations and undertakeenforcement against breaches of ‘Productof ’ claims. Special funding has been madeavailable for mounting several cases over thenext year and the Commission has alreadyinstituted proceedings for false country oforigin claims in the fruit juice industry.

Frequent flyer inquiryThe Commission commenced an investigationinto frequent flyer schemes offered by the mainAustralian airlines in response to consumercomplaints about:

• the limited availability of frequent flyer awardseats;

• the airlines’ cancellation with limited notice ofspecific reward offers;

• frequent flyer program customer service levelsand standards; and

• the blackout periods for flight awards.

Offering rewards without intending to supplythem as represented risks misleading consumersand subsequent action under the Trade PracticesAct.

The aim of the inquiry is fairer and moretransparent frequent flyer programs.The Commission report is scheduled forrelease by the end of 2001.

Education, liaison and advice

Consumer communications strategy

The Commission established an internalcommunications committee to coordinate itsgeneral communication activities with consumersand consumer organisations and to furtherdevelop reporting systems both internallyand to the Commission’s stakeholders.

Advertising and sel l ing

The publication, Advertising and selling, helpsbusinesses selling goods or services and theiradvertisers identify and avoid common problemsand pitfalls. Recent real life examples are used toexplain how the law applies and it also includesadvertising on television and the Internet as wellas recent amendments to the Trade PracticesAct. It does not cover the responsibilities

of businesses in relation to the Goods andServices Tax.

Advertising and selling will also be the maintheme for the Competing Fairly Forum inOctober 2001.

ACCC Digest

The ACCC Digest is published quarterly by theLaw Book Company. The Commission providesthe material to LBC. It is a subscriber publicationfor Australian and international corporations,medium to small business, government, law firmsand compliance professionals.

Commerce (Trade Descriptions)Act (CTDA)

The Commission is a member of the Committeeof Officials reviewing the CTDA administeredby the Australian Customs Service. The CTDA,which has operated since 1905, states that allgoods imported or exported must be truthfullydescribed.

The CTDA is scheduled for review under theCommonwealth Legislation Review Scheduleestablished by the Competition PrinciplesAgreement. The review is being undertakenby a committee including representatives fromCustoms, Industry Science and Resources,Treasury and the Commission. It will focus on those parts of the legislation that restrictcompetition, impose costs or confer benefitson business including country of origin claims.It is expected to report by February 2002.

Petrol

The Commission liaised with EnvironmentAustralia about a compliance regime for theproposed mandatory motor vehicle fuelstandards. This will help consumers know ifpetrol they are buying contains additives andtheir effect on vehicles and engines.

Financial services

Code of Banking Practice review

The Commission provided comments to theindependent Review of the Code of BankingPractice — the first review since the code beganin 1996. The main issues covered in theCommission’s submission were undue


harassment and coercion, unconscionableconduct, interchange fees, convergence andshadow ledgers.

Comparison interest rates

The Commission provided comments to theNSW Department of Fair Trading on thedevelopment of the Mandatory Comparison RateBill. The bill proposes to amend the ConsumerCredit (NSW) Act 1995 to require mandatorydisclosure of an average annual interest rate.

Senate Select Committee on Financial Services

and Superannuation

The Commission made written and oralsubmissions to the committee providinginformation on regulatory gaps and overlaps,complaints and enforcement figures andexamples of recent enforcement matters andcompliance activities.

Industry codes

Austral ian Entertainment IndustryAssociation

The Commission was asked to participate in aworking party on developing a National Codefor Event Ticketing. The Commission was alsoasked by the NSW Department of Fair Tradingto comment on the review of the current NSWEntertainment Industry Code of Conduct.As these two codes relate to the same mattersthe Commission is liaising with Consumer AffairsDivision of Treasury about each agencies’ rolein the working party and the review of therespective codes. This matter was raised at theMinisterial Council of Consumer Affairs meeting.

Ferti l ity Society of Austral iaadvertising code of practice

The Fertility Society approached theCommission for its opinion on an advertisingcode of practice for the IVF industry. This codewas drafted to ensure that IVF clinics wereengaging in ethical and medically responsiblepractices in advertising their services and theCommission needed to examine the potentialanti-competitive effect of some of the code’sclauses. Work on this code is continuing.

Digital TV marketing code

The Commission participated in the codedevelopment working party that comprisedindustry members, consumer advocacy groupsand government agencies. The code will counterpotential misleading labelling issues with thetransition from analogue to digital television.Work on this code is continuing.

Code of practice for collectingsocieties

An initial discussion panel consisting of theCommission and other relevant agenciesconvened to discuss developing a code ofpractice to cover collecting societies. Theseare organisations that collect royalties onbehalf of performers and copyright owners frombusinesses that use the material in the course oftheir business. The Commission made an initialsubmission on the codes of conduct and therelevance of the Trade Practices Act.

Austral ian Fruit Juice Association

The Commission and the AFJA held regularmeetings about the Fruit Juice Industry Codeof Conduct. The AFJA made several submissionsto the Commission on matters relating tocountry of origin, 100%, Pure, Fresh and FreshlySqueezed labelling claims. The AFJA referred anumber of breaches of the code to theCommission for investigation.

Proposed trucking industry code

The Commission was involved in the workingparty to develop a code of conduct for theabove 5-tonne freight trucking industry.The Commission discussed with variousmembers of the industry and government theterms of the proposed code and advised onhow the Trade Practices Act affected codes.

Compliance programsThe Commission audits and vets complianceprograms that are submitted as part of s. 87Bundertakings, consent orders or other courtorders. The audit and vetting process isimportant to ensure compliance programsare consistent, effective and have integrity.The Commission vetted numerous complianceprograms throughout the year. A nominated


independent auditor conducts the actual auditand the Commission then reviews the auditreports. The Commission conducted audits oncompanies such as Hugo Boss Pty Ltd, SimsMetal, Design Plus Textiles Limited and GoldenCircle.

Court actions and undertakings

Country of origin

Taj Food Sales Pty Limited

On 10 July 2000 the Federal Court, Sydney,found that Taj Food Sales Pty Limited and itsmanaging director, Mr Sah Dev Varma, had madefalse representations about the country of originof its basmati rice. The Commission alleged thatfor the past four years Taj Food Sales had beenimporting basmati rice from Pakistan andpackaging it in one-kilogram bags marked withthe words ‘Produce of India’. Taj Food Sales soldthe packaged rice to Woolworths Limited whowas unaware that the rice was from Pakistan. TajFood Sales and Mr Varma agreed to injunctionspreventing the offending conduct in the future,and also published corrective newspaperadvertising.

Keith Harris & Co Ltd t/a Orchy

The Commission accepted court enforceableundertakings from Keith Harris & Co Ltd on4 June 2001. Keith Harris represented thatseveral of its fruit juices were a ‘Product ofAustralia’ when they contained imported juice.Keith Harris withdrew offending labels andagreed to implement a trade practicescompliance program.

Pyramid sel l ing schemes

Guardian Finance & Insurance Consultants

Pty Ltd

The Commission instituted proceedings on5 April 2001 in the Federal Court, Brisbane,alleging that Guardian Finance and InsuranceConsultants Pty Ltd promoted a scheme thatamounted to an illegal pyramid selling schemeor referral-selling scheme. The Commission isalso alleging that its sole director, Mr PeterMartin James, was knowingly concerned.


Quality Bakers Australia Ltd (Buttercup)

In May 2001 the Commission institutedproceedings against Quality Bakers AustraliaLimited (Buttercup) in relation to its promotion‘Help Buttercup to Help Our Babies’. Buttercup’sadvertisements stated that 30 cents would bedonated to the Canberra Hospital ‘for eachadditional Buttercup product purchased’between certain dates. However, the fine printqualification stated that the donation wouldapply only to products sold over and abovethe average sales for a defined period. FollowingCommission intervention Buttercup honoured itspromotion by giving a donation to the CanberraHospital, but the matter remains before thecourt for final resolution.

Target Australia Pty Ltd

The Commission instituted proceedings in theFederal Court, Perth, on 5 September 2000alleging that certain Target television andnewspaper advertisements breached the Act.Its ‘Every Stitch of Clothing’ promotion statedin large print that substantial percentage pricereductions applied to a broad category of goodsbut also used fine print to exclude items fromthe discount sales.

On 25 June 2001 the court declared that theadvertisements, which appeared nationallyin early 2000, were false, misleading anddeceptive. The court ordered Target tobroadcast a corrective advertisement nationallyon 88 television stations and to publishcorrective notices in 37 newspapers acrossmetropolitan, regional and rural Australia.The orders were made with Target’s consent.The court also issued injunctions restrainingTarget from advertising in the same way forfour years, ordered Target to review its tradepractices compliance program, and orderedTarget to pay Commission costs of $65 000.

Pocket Money

Pocket Money Limited (PML) traded in thepromotion and sale of phonecards. TheCommission considered that its advertisingcould breach the Trade Practices Act.

PML provided a s. 87B undertaking to correct itsadvertising and promotions in future and honourits previous offer.


False, misleading or deceptiveconduct


The Commission accepted a court enforceableundertaking from the National Australia Bankfor a breach of s. 52 of the Trade Practices Actwhen promoting its Wheat Advance product infull-page newspaper advertisements. The NABadvertisements offered wheat farmers a betterdeal including underwriting costs around17.5 per cent lower than its competitor. In thiscase the comparison was not accurate. NABknew that its underwriting costs were not17.5 per cent lower. NAB undertook toimplement a trade practices complianceprogram to ensure future breaches of theAct do not occur.

Bob Jane T-Marts Pty Ltd

Following proceedings begun by the Commissionon 6 December 2000 Bob Jane T-Marts PtyLtd gave court enforceable undertakings andprovided compensation to affected consumersvia public notice. Eleven Bob Jane stores hadoffered a thrust wheel alignment at a higher costthan a cheaper front two-wheel alignment whenthe machinery used for both gave the same levelof service.

Loyalty Pacific Pty Ltd (Fly Buys)

On 1 January 2001 the Commission acceptedcourt enforceable undertakings from LoyaltyPacific Pty Ltd, the operator of the Fly Buysloyalty scheme, for alleged misleading terms andconditions of a special promotion in mid-2000.The promotion offered members 2000 bonusFly Buys points for shopping at Shell andBest Western. However, it was not clear thatexpenditure was required at both Shell andBest Western to qualify for the bonus points.

Loyalty Pacific acknowledged that the terms andconditions of the promotion were ambiguousand agreed to credit the affected Fly Buysmembers with the 2000 bonus points. This gave34 000 members bonus points valued at about$700 000.

Sony Australia Limited

On 1 March 2001 the Commission acceptedcourt enforceable undertakings from SonyAustralia Limited for alleged false and misleading

representations in several Sony handycam salesbrochures. Sony accepted the Commission’sconcerns and agreed to determine who may haverelied on the representations in the brochureswhen buying Sony handycams; provideappropriate compensation to those consumersidentified as relying on the representations inthe brochures; and conduct an independentreview of Sony’s trade practices complianceprogram.

Billbusters Pty Limited

In 1998 the Commission obtained interimrestraining orders against Billbusters Pty Limitedand its director Miles Kendrick-Smith restrainingthem from making certain representations inthe supply of telephone bill-paying servicesand dealing with their assets. Those orders weredischarged in November 1999. The date of thenext directions hearing is to be advised by thecourt.

Top Snack Foods Pty Limited

In proceedings instituted in 1996 the FederalCourt, Sydney, found that Top Snack Foods hadengaged in misleading and deceptive conductand that George Manera, a director and managerof Top Snack Foods, and Nick Kritharas, generalmanager, were knowingly concerned. Damages ofover $400 000 were awarded to franchisees ofTop Snack Foods.

In early 2000 a liquidator was appointed tosome of the parties. Two individuals were alsodeclared bankrupt. The Commission has secured,through the NSW Supreme Court, access to$400 000 acting as creditor, although anappeal to this has been lodged.

McDonald’s Australia Limited

On 9 March 2001 the Federal Court found thatthe 34 claimants who presented evidence in aprivate representative proceeding regarding the1999 McMatch & Win Monopoly competitionhad not made out their claim. At a directionshearing in Brisbane on 27 April 2001 JusticeDowsett determined a timetable for hearing beset for the Commission’s matter, and the matteris continuing.


Black on White Pty Ltd trading as the Australian

Early Childhood College

The Commission alleged that Black on WhitePty Limited (trading as the Australian EarlyChildhood College) misled consumers aboutaccreditation associated with courses offeredin 1997; the existence of a deferred paymentscheme for tuition fees; and had engaged inunconscionable conduct by signing studentsup to contracts without disclosing the onerousnature of some of the clauses in those contracts.The Commission considered this conductbreached the Act.

The Federal Court made orders that Black onWhite Pty Limited had contravened the Act byengaging in misleading and deceptive conduct,and unconscionable conduct. The court alsofound that Mr James Nicholas Poteri wasknowingly concerned in misleading andunconscionable conduct and that his son,Mr Nicholas James Poteri, was knowinglyconcerned in the contraventions with respectto the accreditation representations.

MT Marketing, One.Tel & Ors

Moore Talk Communications Pty Ltd, tradingas MT Marketing, promoted mobile phone andaccess plan packages by way of telemarketingactivities across Australia. The company failed toprovide customers with a full copy of the termsand conditions before asking the customer tosign the application. The Commission alsoalleged that the company misled consumersabout the nature of the ‘free phone’ promotionas the first approach was by survey. Consentinjunctions were obtained from the FederalCourt and Moore Talk Communications provideds. 87B undertakings.

Michigan Group

In October 2000 the Commission institutedproceedings in the Federal Court against variousrespondents for alleged false and misleading ordeceptive conduct in relation to the promotion,sale and distribution of commercial orange juicemachines.

The Commission alleges that from about early1998 the respondents promoted a schemewhere investors would buy a business of one ormore commercial orange juicing machines from

Michigan Group Pty Ltd, Imobiliare Pty Ltdand/or Yeppoon Pty Ltd. The Commissionalleges that the promoters promised thatbusiness would take very little time to operate,the machines were ‘state of the art’, would beinstalled in nominated stores very quickly andwould make significant profits.

The Commission is seeking court orders,including declarations and injunctions.This matter is continuing.

inthebigcity.com

Advertisements in rural and regional areasthroughout Queensland and northern NewSouth Wales gave a guarantee of employmentand discounts on removal and accommodationcosts for callers to a 1900 number. TheCommission alleged that there were noguarantees of employment, no discountsavailable and the information provided isinaccurate, dated or totally false.

On 9 April 2001 the Federal Court made interimorders stopping inthebigcity.com Pty Ltd and itsdirectors from operating or promoting this orany other 1900 employment service.

Khad Pty Ltd, trading as Professionals Edge Hill

On 6 September 2000 the Commissionaccepted undertakings from a real estate agentin Cairns regarding representations made totenants about the effects of being listed on adefaulting tenancy database. The undertakingsincluded admissions and undertakings not torepeat misrepresentations about the effect ofbeing listed on a defaulting tenancy databasetogether with corrective apologies to affectedtenants.

C7 Pty Ltd

On 7 February 2001 C7 Pty Ltd providedundertakings in response to the Commission’sconcerns about representations made by C7about its Olympic basketball coverage. Theundertakings included C7’s future programmingrepresentations, a form of refunds for affectedcustomers and a donation to charity.


Back to Basics Worldwide Education Aids

Systems Pty Ltd

On 17 May 2000 the Commission filed criminalproceedings in the Federal Court in Adelaideagainst Queensland-based Back to BasicsWorldwide Education Aids Systems Pty Ltd,Hartwich Pty Ltd, and company directors JohnMoon and Wayne Baker.

It alleged that the companies and their directorsplaced advertisements in newspapers in severalStates inviting investments of up to $65 000in a business opportunity selling a range ofeducational aids to schoolchildren and theirparents. At least seven distributors wererecruited. The Commission alleges thatrepresentations about the profitability andrisk of the business were false or misleading.

The defendants pleaded guilty and penaltysubmissions have been made. Justice Spenderhas reserved judgment.

Stephen Frederick Grant, director Furniture

Wizard Pty Ltd (in liquidation)

On 29 October 1999 proceedings wereinstituted in the Federal Court, Adelaide,against Stephen Frederick Grant, director ofFurniture Wizard Pty Ltd (in liquidation) formisrepresenting to a number of franchiseesabout the existence of guaranteed work fromnational contracts, potential income, trainingand support offered.

On 9 November 2000 the court grantedinjunctions against Mr Grant ordering that forthree years he be restrained from making falseor misleading representations in businesses thesame or similar to Furniture Wizard Pty Ltd.It made orders for refunds totalling $169 000plus interest and the Commission’s costs.

Anthony Robert Hassett, director of Commercial

& General Publications Pty Ltd

On 17 January 2001 the Commission institutedproceedings in the Federal Court, Hobart,against Anthony Robert Hassett, director ofCommercial & General Publications Pty Ltd(CGP) alleging that he made payment demandson Tasmanian small businesses for unsolicitedand unauthorised advertising in CGPpublications.

It was also alleged that Mr Hassett acceptedpayment from a number of Tasmanian smallbusinesses for advertising in a proposedpublication when he was aware, at the time ofaccepting payment, that CGP would be unableto supply the advertising services.

The Commission is seeking orders for fines,injunctions, and damages for advertisers.

Tattersall’s Hobart Aquatic Centre

In March 2001 the Commission investigatedadvertisements placed by the Hobart AquaticCentre offering consumers free pairs of crosstrainer shoes valued at $179 on taking out a12-month membership in February 2001, butdid not disclose that the offer was limited tonew members only. Following the Commission’sintervention, the centre placed correctiveadvertising, and contacted all existing memberswho renewed in February offering them the samebenefit.

Will Writers Guild Pty Ltd

On 27 March 2001 the Commission institutedproceedings in the Federal Court, Hobart,against Will Writers Guild Pty Ltd (WWG) andits director Sidney Murray alleging that WWGfailed to provide prospective franchisees withdisclosure documents as required by themandatory Franchising Code of Conduct, andmisled franchisees about their rights and therisk involved in carrying on a business of writingwills for reward.

The Commission is seeking declarations andorders for penalties, injunctions and damagesfor losses suffered by franchisees.

Undue harassment and coercion

Esanda Finance Corporation Ltd and Ors

On 12 April 2001 proceedings were institutedin the Federal Court against Esanda FinanceCorporation Ltd, Capalaba Pty Ltd tradingas Nationwide Mercantile Services, andseveral individuals for breaching the Act.The Commission alleged that a consumer whoobtained a loan, secured by a chattel mortgageover a motor vehicle, from Esanda was subjectedto physical force, undue harassment andcoercion, and unconscionable conduct.The Commission also alleged a number of


individuals breached s. 23 of the WesternAustralian Fair Trading Act 1987 which mirrorss. 60 of the Trade Practices Act.

The Commission is seeking declarations;injunctions restraining Esanda, Capalaba andthe individuals from engaging in or beingotherwise involved in similar conduct; orders;compensation for loss or damage; and costs.

Lux Pty Ltd

On 27 July 2000 the Commission institutedlegal proceedings in the Federal Court againstLux Pty Ltd, and one of its door-to-door salesagents for being knowingly concerned, allegingthat the parties had engaged in unconscionableconduct. It also alleged they had used undueharassment or coercion by selling a Lux vacuumcleaner to an intellectually impaired couple whocould not read or write.

The Commission is seeking declarations,injunctions, a corrective notice, theimplementation of a trade practices complianceprogram, and a declaration that the contract thecouple entered into with Lux was void, and costs.

Cash Return Mercantile Pty Limited and Sharyn

McCaskey

On 1 August 2000 the Federal Court, Perth,held that Cash Return Mercantile Pty Ltd(Cash Return) and its former agent Ms SharynMcCaskey engaged in undue harassment,coercion and misleading conduct while collectingdebts from consumers. This was the first casetaken by the Commission under s. 60.

The court granted injunctions restraining CashReturn and Ms McCaskey from engaging insimilar conduct in the future. It also orderedMs McCaskey to attend a trade practicescompliance seminar; Cash Return to publisha corrective notice in The West Australiannewspaper; and both parties to pay theCommission’s costs.

Administrative resolutions

Who Weekly magazine (Time Inc)

In mid-1999 Time Inc offered 200 000customers on their mailing list throughoutAustralia four weeks of Who Weekly magazinefree of charge, along with the option to take upa subscription.

The 8467 people who responded ‘maybe’ weresent four ‘free’ issues and a letter restating thesubscription offer with issue 1 and asubscription invoice with issue 4.

Complainants alleged Time Inc continued overmany months into February 2000 to issuemagazines and invoices which asserted aright to payment for an unsolicited 26-issuesubscription, in breach of s. 64 of the TradePractices Act.

Time Inc denied that the wording of the invoiceswas in breach. However, it was admitted thatthere were some contradictions and in October2000 the matter was resolved when theCommission agreed to an administrativeresolution.

Product safetyThe Commission has expanded networks forproduct safety knowledge and information toraise public and industry awareness of currentproduct safety issues. Over the past year theCommission has attended conferences andseminars and has made presentations onproduct safety matters.

Several product safety guides have beenpublished and a number of proposed newstandards and bans developed (see below).Also detailed in this section are the productsthat were surveyed by the Commission duringits annual product safety survey program.At the end of this section are the productsafety matters the Commission took to court oraccepted undertakings, some of which proved tohave very significant enforcement outcomes forthe Commission.

Proposed new standards

Bunk beds

Injury statistics confirm that bunk beds havebeen associated with a high incidence of child injuries for some years in Australia.On 15 January a new draft Australian/NewZealand standard for bunk beds (DraftAustralian/New Zealand Standard for BunkBeds — revision of AS/NZS 4220:1994)was issued for comment by the StandardsAustralia/Standards New Zealand Committee(no. CS/3). It is proposed that this standardwill be made mandatory.


Baby walkers

Baby walkers have long been associated witha range of injuries to infants. A regulationto introduce a set of mandatory safetyrequirements has been drafted for introductionunder the Trade Practices Act. It will be basedon an existing US standard.

Trampolines

In March 2001 the Standards AustraliaCommittee (no. CS-005) for PlaygroundEquipment prepared a draft standard(Trampolines — Consumer) for components,packaging information, warnings andmaintenance instructions for trampolines.It aims to address safety risks and preventinjuries to consumers who use trampolines.The Commission is participating as a memberof the Standards Committee in case the standardbecomes mandatory.

Amended existing standard

Children’s household cots

This standard was amended in April 2001 totake account of antique and collectable cots.The standard now exempts coverage of antiqueor collectable cots provided they are suppliedwith a certificate that warns against placing achild in such a cot.

Bans

Tinted head l ight covers

A temporary ban under s. 65L of the Act is likelybe introduced by the end of 2001 for motorvehicle headlight covers which allow less than85 per cent luminous transmittance (tintedheadlight covers).

Candles with lead wicks

The temporary ban on candles with lead wicksexpired on 2 March 2001 and on 28 March2001 another new unsafe goods notice(temporary ban) under s. 65L was publishedin the Commonwealth of Australia Gazette oncandles with lead wicks, for a further 18 months.Whereas the previous temporary ban did notallow for any lead to be present in candles, thenew temporary ban allows for some lead to bepresent — up to 0.06 per cent by weight.

Information and liaison

Guides

During the year the Commission issued guidesto standards for bean bags, exercise cycles,pedal bicycles, paper patterns for children’snightwear, elastic luggage straps, balloon-blowing kits and cosmetics. These guides containinformation about standards that apply to eachproduct, as well as guidance for retailers andsuppliers to ensure that the goods they stockcomply. They are also available on theCommission’s website.

Conferences, seminars and speeches

National Injury Prevention Conference — Thefourth National Conference on Injury Preventionwas held in Canberra on 23 and 24 November2000. For the first time the conference programincluded a consumer safety stream, co-plannedby the Commission. In addition to thepresentations, two open forums about productsafety were held.

Enforcement and compliance seminar — TheCommission hosted a seminar on enforcementand compliance in Melbourne on 27 and28 March 2001. It brought together staff fromall offices of the Commission and from State,Territory and New Zealand consumer and fairtrading agencies, in the consumer protectionand product safety fields. It was the first timeoperational staff from these agencies had cometogether and another is planned for late 2002.

Kidsafe Awards 2000 — In February 2001 theChairman was the keynote speaker at the annualKidsafe Awards 2000 Luncheon. In his addressthe Chairman said product safety was theresponsibility of government, consumers andindustry. He also outlined the Commission’s rolein promoting and enforcing the product safetyprovisions of the Trade Practices Act.

Keith Manch, CEO,NZ Ministry ofConsumer Affairs,at ACCC seminarin March 2001.


International activities

Visit ing international graduate

During the year an international graduate fromSamoa came to work in the Product SafetySection under the Commission’s InternationalInternship Program for 2000. At the end of herstay she commented on the usefulness of theknowledge she had gained and said she wouldattempt on her return home to implement manyof the work practices and systems she wasintroduced to during this time.

Visit to Durban, South Africa

The Manager, Product Safety attended theConsumers International World Congress anda workshop of the International Society ofConsumer and Competition Officials in Durban,South Africa in November 2000. These eventsprovided an excellent opportunity to learn aboutregional systems and developments in consumerproduct safety.

Liaison with international bodies

Staff took part in discussions and madesubmissions to the US Consumer ProductSafety Commission (CPSC) which has links andcontacts with international bodies. Staff alsoattended a presentation given by Mr RonaldMedford, Assistant Executive Director, Officeof Hazard Identification and Reduction, CPSC.

Product safety surveys The Commission enforces mandatory productsafety standards, information standards andbans on unsafe goods declared under theTrade Practices Act. Random market surveys areconducted on a strategic risk management basis— products are selected for surveys accordingto their relative level of hazard and marketpenetration.

Several products were targeted during theyear and the following outlines the surveysconducted. Compliance was generally foundto be good; however, several breaches weredetected and pursued.

Balloon blowing kits — A survey was carried outaround the country for the presence of benzene,a known carcinogen in balloon-blowing kits.Balloon-blowing kits usually comprise a tube ofsynthetic substance and a straw. The user blowsthrough the straw into a plug of the synthetic

substance thus expanding it and forming aballoon. The main hazard of these kits resultsfrom the inhalation or ingestion of benzene.

Bean bags — Because bean bags appear to beback in vogue Commission offices carried outAustralia-wide surveys on the traditional beanbag, and a range of new related products suchas bean bag chairs, sofas and ottomans.

Cosmetics — Compliance surveys were carriedout to ensure the appropriate ingredientlabelling is provided for these products at thepoint of sale. This survey focused on discountstores, smaller non-departmental stores andchemist outlets.

Disposable cigarette lighters — The key focusof this survey was to ascertain whether thelighters are resistant to operation by a childunder five years. Survey staff were aware of thevariety of child resistance features that lighterscan have and looked out for devices that disablethe child resistant mechanisms on lighters.Special attention was paid to tobacconists,general and discount merchandise stores,supermarkets, convenience outlets and servicestations during the survey.

Elastic luggage straps — Elastic luggage strapswere surveyed at hardware shops, automotiveaftermarket suppliers, camping stores, cycle andsports stores, service stations, luggage shops,chain and discount stores, and departmentstores. Any elastic luggage straps that were notappropriately labelled with warnings as requiredby the information standard on these products,were removed from sale.

Exercise cycles — Random surveys werecarried out on exercise cycles in various States.They checked the performance and safety levelsof each bike under the requirements of thestandard including chain guard checks, flywheelchecks and finger entrapment tests.

Pedal bicycles — This survey of toy anddiscount stores was to ensure that only bicyclesthat comply with the new mandatory standardwere being supplied. Survey staff looked forserious safety defaults in bikes such as back-pedal brake failure, sharp edges on children’sbikes and protective guards. Survey staff alsolooked for useful and informative labelling onbikes and whether the bike came with an owner’smanual.


Vehicle and trolley jacks — Given the extensivesurveys carried out on these products inprevious years, survey staff targeted troubleareas in this industry.

Vehicle support stands and portable ramps —This survey examined the adequacy of markingand instructions for use on these products. Inmost cases ramps and stands were surveyed atthe same time and in the same outlets as vehicleand trolley jacks.

Court actions and undertakingsThe Commission has increasingly used courtenforceable undertakings under s. 87B ofthe Act in the product safety area. Manyundertakings contain trade practices complianceprograms specific to product safety.

Dimmeys Stores Pty Ltd

Following criminal proceedings instituted bythe Commission against Dimmeys in November2000 the Federal Court, Brisbane, finedDimmeys Stores Pty Ltd $160 000 for supplyingchildren’s nightwear that did not comply withthe mandatory consumer product safetystandards for children’s nightwear. The breachesrelated to six charges concerning the supply ofchildren’s nightwear in Townsville in July 2000and one further charge for the supply inMelbourne in November 2000. Dimmeyspleaded guilty to the seven charges. The courtalso imposed an injunction which will operateuntil 2004.

MHG Plastic Industries Pty Ltd

After proceedings were instituted on 13 May1999 the Federal Court, Sydney, ordered a recallof all helmets and that consumers be given a fullcash refund. MHG appealed and the Full FederalCourt heard the appeal arguments in November1999. The Full Federal Court overturned thedecision of the lower court in August 2000,holding that the tests relied upon by the primaryjudge had not been properly performed by thetesting agency and thus could not be reliedupon.

Spotlight Promotions Pty Limited

In November 2000 the Commission accepteda court enforceable s. 87B undertaking fromSpotlight Promotions Pty Limited, a Queensland-based promotional merchandise supplier for

supplying sunglasses that failed to comply withthe mandatory safety standard. The undertakingrequired Spotlight to implement a tradepractices corporate compliance program.Spotlight, after being asked, recalled thesunglasses from consumers and offered them arefund or replacement pair. The sunglasses weresupplied by Spotlight to Carlton and UnitedBreweries (CUB) for promotional purposes.

Jutco Pty Limited, Shinn Fu (Australia) Pty Limited

and Super Cheap Auto Pty Limited

During a national product safety survey in Mayand June 2000 three companies in separatematters were found to have supplied vehicleand trolley jacks that did not comply with therelevant mandatory product safety standards.All provided court enforceable s. 87Bundertakings to the Commission andimplemented a trade practices complianceprogram.

ZG Pty Limited

On 12 October 2000 an Adelaide-basedwholesaler agreed to recall a vehicle trolley jackafter testing by the Commission found it failedthe mandatory standard. The jack which waslabelled Macho Pty Ltd was primarily suppliedto wholesalers and retailers in South Australiaand Victoria. The jack failed to meet someperformance characteristics, in one instancebecoming unstable when subjected to a loadtest, as well as failing mandatory requirementsfor labelling. ZG Pty Limited published recallnotices asking consumers to return the jacks tothe place of purchase for a full refund. ZG PtyLimited also provided a court enforceables. 87B undertaking to the Commission andimplemented a trade practices complianceprogram.

Regency Importing Company Australia Pty Limited

(t/a Leisure World)

On 12 March 2001 Regency ImportingCompany Australia Pty Ltd provided theCommission with an enforceable s. 87Bundertaking to recall the DT900 Lifestylerexercise cycle after the cycle failed safety testsand was considered to be a safety hazard. Thecycles, imported from the United States, weresold exclusively over the past year through RebelSport stores around Australia. The undertakingsalso provided full refunds to consumers and an


agreement to implement a trade practicescompliance program.

Apollo Bicycle Co. Pty Limited

During a routine retail product safety surveystaff helmets supplied by Apollo Bicycles werefound not to comply with the mandatorystandard. The labelling on the helmets claimedthey were suitable for cycling; however, they areknown as street helmets and are commonly usedby skateboarders and scooter riders. ApolloBicycles provided a court enforceable s. 87Bundertaking and implemented a trade practicecompliance program.

Pacific Dunlop Limited (PDL) Ansell

On 21 January 2000 the Commission institutedproceedings in the Federal Court, Melbourne,against PDL Ansell seeking compensation for aconsumer who has allegedly suffered a serious

form of latex (rubber) allergy through usingPDL’s Ansell brand of household rubber gloves.This matter is still before the court.

The professionsBefore 1996 unincorporated professionalpractices were partially excluded from the anti-competitive provisions of the Act. But now allnon-employed professionals are liable if theyengage in anti-competitive conduct. They arealso liable under the consumer protectionprovisions for misleading and deceptive conduct.Since advertising restrictions were lifted,professionals must be extremely careful inhow they represent themselves to the public.The Commission has investigated several casesthat potentially have breached the TradePractices Act.


The Commission continued to investigateallegations that some Royal Australasian Collegeof Surgeons’ (RACS) processes restrict entry toadvanced medical and surgical training in breachof the Act.

The investigation concentrated on RACS’ rolein determining how many trainees receivedadvanced training in orthopaedic surgery andhow it assesses overseas-trained specialistsreferred to RACS by the Australian MedicalCouncil. The Commission decided that RACS’procedure and conduct may breach some of thecompetition provisions of the Act. In November2000 RACS applied for authorisation of itsprocesses in:

• selecting, training and examining surgicaltrainees in each of the nine specialities inwhich it conducts training;

• accrediting hospital posts as being suitable fortraining surgeons; and

• assessing the qualifications of overseas-trainedpractitioners.

Since the introduction of the Government’sLifetime Health Cover, which triggered a rapidrise in health fund membership, the Commissionhas paid particular attention to advertisingand promotional campaigns by health funds.As a result the Commission has institutedproceedings against Medibank Private and MBFfor misleading and deceptive advertising ofhealth insurance products (see p. 56).

The Commission has continued to monitor thecontracting process between hospitals andhealth funds for potential breaches of the Act.The Commission obtained court enforceableundertakings from Medibank Private overunconscionable conduct concerns aboutincluding a unilateral contract variation clausein a proposed contract with an independentspecialist psychiatric hospital.

The Commission’s second report to theAustralian Senate on anti-competitive andother practices by health funds and providersin relation to private health insurance wastabled in the Senate on 8 November 2000.The Commission prepared the report inresponse to an order agreed by the AustralianSenate on 25 March 1999. The Commission iscurrently finalising the third report to theSenate.

Following concerns raised about the impact ofthe Trade Practices Act on general practitioners,the Commission has been working closely withthe Department of Health and Aged Care andvarious GP groups on a communication strategyabout the implications of the Act for GPs.

It released a draft general practitioners guide tothe Trade Practices Act for limited consultationon 6 March 2001. On 30 March 2001 theCommission released a revised draft reflectingsome of the initial feedback for broaderconsultation. The Commission travelled to ruraland metropolitan areas of NSW, Victoria andWestern Australia to discuss the issues in therevised draft guide with GPs, practice managersand their representative associations. TheCommission is considering further submissionsand will finalise the guide in the near future.It will be distributed to all GPs around Australia,as well as their advisers and practice managers.

Liaison

Tobacco and the Department ofHealth and Aged Care

The Commission continues its liaison withthe Department of Health and Aged Care.It is a member of the Commonwealth Cross-Government Tobacco Liaison Meeting whichmeets several times a year to discuss issuesrelating to tobacco products includingadvertising, labelling, health effects andoverseas developments.

The Commission has made a submission to theDepartment of Health and Aged Care about itscontinuing negotiations on the World HealthOrganisation’s Framework Convention onTobacco Control.

Food and ANZFA

The Commission continues to work closelywith the Australia New Zealand Food Authority,negotiating a memorandum of understanding tohelp manage false and misleading claims wherethe Joint Food Standards Code and the Actoverlap.

It has lodged submissions to ANZFA on variousfood standards proposals. The Commission wasa member of the External Advisory Group forANZFA Proposal P237 relating to Country ofOrigin Labelling of Food. It has also provided


comments on Standard A18 (food producedusing gene technology) and Proposal P234(nutrient content and other related claims).

The Commission began work on geneticallymodified labelling and the Act — an emergingissue of concern to consumers because of theincreasing range of GM foods in the marketplaceand the new mandatory labelling regime that willbegin in December 2001.

In providing guidance to the food industrythe Commission spoke at two food industryconferences and published an article in theACCC Journal. The Commission has also spokenwith several industry participants about labellingand certification schemes. It expects to release adiscussion paper on GM food labelling and theAct in late 2001.

Therapeutic Goods and the TGA

The Commission has worked closely with theTherapeutic Goods Administration (TGA).This has involved sharing information andinvestigating on the TGA’s behalf potentialmisleading claims about products that falloutside the TGA’s jurisdiction. The twoagencies decided to finalise a memorandumof understanding to formalise this workingarrangement. They met in March 2001 andnegotiations on the agreement are continuing.

In January 2001 the TGA invited the ACCC tonominate a representative as Observer on theTherapeutic Goods Advertising Code Council(TGACC).

In Australia all advertisements and genericinformation about therapeutic goods mustcomply with the Therapeutic Goods Act 1989,the Therapeutic Goods Regulations 1990, theTherapeutic Goods Advertising Code (TGAC)and the Trade Practices Act. A new TGAC cameinto effect on 19 April 2000.


Price f ixing

Australian Medical Association & Mayne Nickless

Ltd and Ors

On 21 July 2000 the Commission institutedproceedings in the Federal Court, Perth, againstthe Western Australian branch of the AustralianMedical Association (the AMA(WA)) and Mayne

Nickless Ltd (MNL) alleging that they wereinvolved in price fixing and other anti-competitive conduct in breach of the TradePractices Act.

The Commission also alleges that the AMA(WA)executive director, Mr Paul Boyatzis, and formerpresident, Dr David Roberts, were knowinglyconcerned in the contraventions, and thatformer general manager (Western Australia andAsia) of Health Care of Australia (a division ofMNL), Mr Martin Day, and former JHC chiefexecutive, Mr Ian MacDonald, were knowinglyconcerned in the contraventions by MNL.

The Commission is seeking court ordersincluding declarations, injunctions, pecuniarypenalties, costs and orders requiring thepublishing of public notices and the institutionof trade practices compliance programs.

Misleading or deceptive conduct

Listen Systems Pty Ltd, Mr Stephen John

Alexander

On 7 April 2000 the Federal Court madedeclarations and orders relating to misleadingand false representations made by ListenSystems Pty Ltd about alternative health therapydevices known as the EQ4 system. The courtalso found that Mr Stephen Alexander, a directorof Listen Systems Pty Ltd, had aided or abettedthese breaches of the Act.

Nine months later the Commission institutedcontempt of court proceedings against ListenSystems Pty Ltd and Mr Alexander for failingto comply with the orders made against it.Following the contempt action, Mr Alexandertook steps to comply with the two orders andwithin 90 days of return of the EQ4 system paida full refund to the one purchaser who hadsought a refund.

Centrebuy Direct Pty Ltd and Peter Edgar Riley

In proceedings instituted in the Federal Court,Sydney, on 21 March 2001 against CentrebuyDirect Pty Ltd and Peter Riley a director ofthe company, the Commission alleged thatadvertisements for the BodyTone machineimplied the user could obtain benefits fromits use without further effort on their part.

The Commission is seeking declarations andinjunctions restraining Centrebuy Direct Pty Ltd


and Peter Riley from making false and misleadingrepresentations about electro-muscularstimulation machines generally, an order forcorrective advertisements and an offer ofrefunds to purchasers of the machine.

Emerald Ocean Distributors Pty Ltd, Slendertone

Health and Beauty Pty Ltd

In proceedings in the Federal Court, Perth,against Emerald Ocean Distributors Pty Ltd,Slendertone Health and Beauty Pty Ltd and theirdirector, Mr Sean O’Donoghue, on 19 July 2000the Commission alleged that Mr O’Donoghuemade false and misleading representationsabout the benefits of using electronic musclestimulation products, generally referred to bythe trade name, ‘Slendertone’.

The Commission is seeking declarations,corrective advertisements, refunds for affectedconsumers, a compliance program, costs andinjunctions restraining Mr O’Donoghue andthe companies from promoting the supply ofSlendertone products using these claims.

Paul and Linda Storer

On 23 April 2001 the Federal Court, Perth,found that Mr Paul Storer and Mrs Linda Storer,who operated the Perth Chronic FatigueAdvisory Centre, engaged in false and deceptiveconduct and made misrepresentations aboutchronic fatigue syndrome which breached theTrade Practices Act.

The court also handed down orders restrainingthe Storers from engaging in similar conduct inthe future; to offer refunds to consumers whowere misled by the representations; toparticipate in a trade practices complianceprogram seminar; and to publish correctivenotices in prominent newspapers to informthe public of the decision.


Medical Benefits Fund of Australia Ltd (MBF)

MBF and advertising agency John Bevins Pty Ltdare currently defending a matter filed by theCommission in the Federal Court in February2001. The Commission alleged that MBFadvertisements were misleading and deceptivebecause of the inappropriate use of fine printdisclaimers. They contained pregnancy-related

images in an endeavour to entice consumersto transfer and/or join MBF private healthinsurance. However, the advertisements alsocontained fine print disclaimers that a 12-monthwaiting period for pregnancy-related serviceswould not be waived. The matter is continuing.

Medibank Private

On 26 October 2000 the Commissioninstituted proceedings against Medibank Privatein the Federal Court, Melbourne, alleging false,misleading and deceptive advertising of itshealth insurance products in two advertisingcampaigns in breach of the consumer protectionprovisions of the ASIC Act.

In the first advertising campaign for MedibankPrivate’s Package Plus products, the Commissionalleges that, among other things, from earlyMarch 2000 Medibank Private advertised ‘norate increase in 2000’ when the rates on theseproducts increased on 1 July 2000.

In the second advertising campaign in majornewspapers around Australia in August 2000,Medibank Private offered consumers whoswitched from another fund ‘any waiting periodswaived’ and ‘get 30 days free if you change toMedibank Private’. However, it is alleged theadvertisements failed to disclose, or adequatelydisclose, that only the 2-month general waitingperiod and the 6-month optical waiting periodwere waived. This was only indicated in verysmall print at the bottom of the ads. It is allegedthe advertisements also failed to disclose, oradequately disclose, that conditions appliedto the offer of 30 days free health insurance.Again a mention that ‘conditions apply’appeared at the bottom of the ads.

Medibank Private lodged a strike out applicationwhich was heard on 13 March 2001. The judgereserved his decision.

Health insurance, as it falls within the definitionof financial product, is regulated through theASIC Act. However, ASIC has formally delegatedthe regulation of all consumer protectionaspects of health insurance to the Commission.


Giraffe World Australia

In proceedings in the Federal Court, Sydney,three years ago, Giraffe World gave undertakings


that it would not represent that the ‘negativeion’ mat it marketed produced negative ions,relieved health ailments or promoted health.However, in 1999 the court found that GiraffeWorld had breached that undertaking havingengaged in misleading or deceptive conduct,promoted a pyramid selling scheme and engagedin referral selling. The court also found thatfounder and director of Giraffe World,Mr Akihiko Misuma, and its president andchief executive officer, Mr Robin Han, wereparty to the contraventions by Giraffe World.

The representative action started by theCommission on behalf of customers wasadjourned in February 2000 pending theoutcome of the liquidator’s recovery actionagainst the directors. This matter is continuing.

E-commerceElectronic complaintsThe Commission has developed a system togive consumers quicker, easier access to lodgecomplaints. Slam-a-Cyberscam allows consumersto complain online about Internet traders thatmay be breaching the Trade Practices Act. Sinceits launch in April 2001 it has received over 100complaints, some of which Commission staffhave investigated.

The International Marketing SupervisoryNetwork (IMSN) has developed and launcheda consumer complaints portal for use by anyconsumer in the world. Complaints may beentered about any business in the world, andwill be accessed by enforcement agencies thatare members of the IMSN. The site can be foundat <http://www.econsumer.gov>.

International Internet Sweep DayThe Commission was lead agency for the thirdIMSN sweep held on 14 and 15 February 2001.Websites all over the world were evaluatedfor their level of compliance with the OECDGuidelines on consumer protection in electroniccommerce. This was rated as the most uniformlyhigh priority issue for all IMSN members.

The 2001 sweep day tested the level ofadoption of Best Practice (OECD Guidelines)by online businesses since they were releaseda year ago.

Over 3300 sites were swept by 48 agencies in19 countries.

The Commission has established itself as thesweep coordinator and plans to lead theproposed Sweep Day for 2002. This will testwebsites all over the world that make claimsabout health products, another priority for manyIMSN agencies.

Domain name registrationThe Commission has investigated many recentcases of consumers renewing their domain nameregistration after receiving an unsolicited renewalnotice. These consumers have also paid a higherprice than if they had renewed their registrationdirectly through the registrar. Many are confusedbecause their current service provider givesthem a package, which includes renewal of thedomain name and many other support services.The Commission issued a press release inJanuary 2001 to raise public awareness.

The Commission has been involved in developingthe domain name system in Australia as amember of the .au Domain Administration(auDA). In addition to this ongoing work, theCommission also made a submission to theWorld Intellectual Property Organisation (WIPO)in June 2001, suggesting firmer discouragementof bad faith registrations of domain names, andmeasures to ensure accuracy of registrationinformation on WHOIS databases.


Internet access servicesFollowing a number of actions involving Internetservice providers and their marketing practices,the Commission released a publicationFair.com in February 2001 to educate ISPsand businesses about fair dealing in regardto websites and Internet access services.

International liaisonThe IMSN includes consumer protectionagencies from 30 countries. They meet twiceyearly to:

• further international cooperation throughsharing information and joint investigations;

• analyse latest developments in cross-borderenforcement actions; and

• explore non-enforcement alternatives forgaining redress for consumers.

The IMSN met in Berlin in October 2000 andin New York in April 2001. Most recently theyagreed that Australia be appointed Presidentof the IMSN for the year 2002–03. TheCommission has close cooperative relationshipswith the IMSN members, and especially theFederal Trade Commission in the USA.

The Commission was involved in meetings of theConsumer Policy Committee of the Organisationfor Economic Cooperation and Development(OECD) in September 2000 and March 2001.At the March meeting the Commissionpresented a paper giving the results of theInternet Sweep Day on compliance with theOECD guidelines, which was well received.The OECD has been working on alternativedispute resolution, codes of conduct, andimplementing their guidelines. It has establishedan electronic discussion group (accessed bypassword) to facilitate further development ofprojects.

APEC Electronic Commerce SteeringGroup

The Commission participated in the 2nd meetingof the APEC Electronic Commerce SteeringGroup (ECSG) held in Canberra on 17 March2001. The group was formed in 1999 todiscuss consumer protection in the contextof e-commerce in the APEC region.

The New Zealand Ministry of Consumer Affairsis coordinating the group’s major project for theshort to medium term: a survey of consumerprotection laws, voluntary or prescribedcodes, charge-back laws and MOUs or otheragreements in 10 APEC economies. The surveywill later be expanded to include other APECeconomies.

Domestic liaisonThe Commission has cooperative relationshipswith many organisations including the AustralianFederal Police, the Australian Customs Service,the Federal Director of Public Prosecutions, theAttorney-General, as well as State and TerritoryFair Trading authorities.

These relationships share information whereappropriate, undertake joint investigations,examine emerging issues, and avoid duplicationof effort.

The Commission has taken part in regularmeetings of the Action Group into ElectronicCommerce to discuss the law enforcementimplications of e-commerce, including publickey infrastructure, account aggregation, emailmonitoring, computer crime such as intrusionand denial-of-service attacks, mutual assistanceand information sharing, encryption, and record-keeping requirements to assist investigations.

The Commission made submissions on theproposed Cybercrime Bill 2001 and theTelecommunications Legislation AmendmentAct 2000. These relate to computer crime,investigative powers, and regulation of electronicaddressing, including domain names.

Forensic investigationsThe Commission has further developed itsforensic capacity in 2001. Officers haveattended training conducted by otherorganisations, including the FTC. TheCommission made presentations at a trainingseminar in March 2001, endorsed by theStanding Committee of Officials of ConsumerAffairs and attended by investigators fromconsumer protection agencies from Statesand Territories within Australia.

Already the Commission has used its forensiccapacity to successfully prosecute severalbusinesses for online breaches of the TradePractices Act.


Competition and B2B activitiesThe main focus of the Commission’s activities inthe B2B (business to business) area has been toidentify and assess new competitive conductissues arising in e-commerce.

During 2000–01 the electronic commerceindustry grew substantially, and in particularmany B2B electronic marketplaces developedin Australia.

The Commission recognises that in many cases,electronic marketplaces can deliver cost savingsand greater efficiencies for both buyers andsellers, as well as providing access to a widerrange of trading partners. At the same time, theCommission has identified that an increasingnumber of electronic marketplaces are beingestablished through collaborative venturesbetween competitors, especially in the banking,health, airline and indirect supplies industries.These may raise issues under Part IV of the Act.

The Commission encourages parties to consultwith it on an informal basis about particularproposals that could raise competition issues.

The Commission has liaised with otherregulatory bodies including the National Officefor the Information Economies (NOIE), ASIC andAPRA and international competition authorities(US Federal Trade Commission and the USDepartment of Justice) to identify potentialemerging issues in B2B arrangements. It hasalso participated in two OECD roundtableson competition issues in e-commerce.


Misleading or deceptive conduct

Stephen Henry Wayt, t/a COM.AU.REGISTER

The Commission instituted proceedings on5 April 2001 in the Federal Court, Brisbane,alleging that a fax sent by Mr Wayt was likelyto mislead or deceive recipients into believingthat COM.AU.REGISTER was responsible forregistering Internet domain address registrationand that it had dealt with those businesses andorganisations previously.

Purple Harmony Plates Pty Ltd

On 6 August 2001 the Federal Court in Victoriafound that Purple Harmony Plates had misledconsumers about the benefits of anodisedaluminium discs, claiming they have a protectiveeffect against electromagnetic radiation as wellas other unsubstantiated properties. The courtorders included interactive corrective advertisingon the company’s website, refunds forconsumers and cessation of the misleadingconduct.

Institute of Taxation Research

For several years both the Institute of TaxationResearch (ITR) and Wayne Levick instituted over35 cases in the Federal and High Courts in anattempt to argue that the various Income TaxActs, including the recent GST legislation, wereillegal. Not one of these cases was successful.

Despite repeated warnings from the courts andheavy costs ordered against them, both ITRand Levick continued to represent that theirconstitutional arguments could be relied on byAustralian businesses and taxpayers to avoidpaying tax.

The Commission instituted proceedings in theFederal Court alleging that the representationsby ITR and Levick were misleading anddeceptive. On 21 February 2001 theCommission obtained final orders in the FederalCourt, Brisbane, to prevent ITR and Levick fromengaging in misleading and deceptive conduct inproviding taxation advice. ITR lodged an appealagainst the court’s decision. However, ITR wasplaced into liquidation only days after theappeal was lodged. This matter is continuing.

Australian Institute of Permanent Make Up

The Commission obtained consent orders inJanuary 2001 against the Australian Instituteof Permanent Make Up including orders for thebusiness to amend its website. This businessadvertised on the Internet offering micro-pigmentation services (tattooing) for cosmeticpurposes. The use of the word ‘permanent’ wasconsidered misleading given that the make-upfaded after three to 10 years. The consentorders also included refunds for those whoconsidered they were misled, declarations underboth the Trade Practices Act and Queenslandfair trading legislation and costs.


David Zero Population Growth Hughes, t/a

Crowded Planet

The Commission was successful in obtainingorders to restrain Mr David Hughes, tradingas Crowded Planet, from supplying oralcontraceptives to consumers within Australia andordering him to publish on his website a noticestating that Crowded Planet cannot and will notsupply oral contraceptives to consumers withinAustralia. The Federal Court found Mr Hughesguilty of contempt of court for failing to complywith these orders. The court issued a warrant forhis arrest and committal but allowed him 30days to comply with the orders. The matter iscontinuing.

The Australasian Institute

In proceedings instituted in the Federal Court,Sydney, in May 1999 the Australasian Instituteundertook to stop promoting the Global Masterof Business Administration degree, and toprovide the Commission with the names andaddresses of students enrolled in the course.Following mediation between the parties, thecourt ordered that the Australasian Institutedisplay a corrective notice on its website for sixmonths, provide refunds to certain students andcontribute $24 000 to the Commission’s costs.On 15 March 2001 a liquidator was appointed.

Info4pc.com Pty Ltd

On 23 January 2001 the Commission institutedproceedings in the Federal Court, Adelaide.On 24 January the matter was transferred to theFederal Court, Perth. The Commission is seekingan interim injunction against a Perth-basedcomputer retailer, Info4pc.com Pty Ltd, forallegedly advertising, including through theInternet, but not delivering very cheapcomputers.

An ex parte interim injunction restrains thecompany from, among other things, advertisingand accepting orders for computers and/orupgrades, and freezes the company’s businessbank account. One motion for contempt ofcourt, dated 31 January 2001, for allegedbreaches of the injunctions was heard on15 June 2001. The hearing for the other motionfor contempt of court, dated 7 May 2001, willbe heard on 7 September 2001. Judgment forthese motions will be handed down together.


Golden Sphere

In proceedings begun in 1996 against GoldenSphere International Incorporated, the FederalCourt found the company, Victor MichaelCottrill and Pamela Reynolds had breached theTrade Practices Act and ordered them to pay$550 000 into a fund to provide refunds toconsumers who had invested in its pyramidselling scheme. Over $250 000 was recoveredand paid into the trust fund. The Commissionobtained evidence that money had beentransferred to Vanuatu and it was successful inenforcing the Australian court orders in theSupreme Court of Vanuatu, and a further$12 500 was recovered.

World Netsafe and Terence Butler

On 8 December 2000 the Federal Court ruledthat the International ATTM Card Schememarketed and promoted by World Netsafe PtyLtd and Terence Butler was an illegal pyramidand referral selling scheme. The court madeextensive orders for breaches of variousconsumer protection sections of the TradePractices Act. Thousands of consumers in manydifferent countries paid $2389 to join the ATTMCard Scheme. Among other things, the courtordered that the respondents post an apologyon their website and that within 28 days, WorldNetsafe and Terence Butler return money to allconsumers who paid to participate in thescheme.

Permanent injunctions are now in place whichrestrain both World Netsafe and Terence Butlerfrom making false representations in connectionwith this scheme or a similar scheme in thefuture.

Greenstar Cooperative Ltd

The Commission instituted legal proceedings on5 June 2001 in the Federal Court alleging thatGreenstar had engaged in an illegal pyramid andreferral selling scheme during the promotion ofan organic fertiliser product and transactioncard, and misleading and deceptive conduct andfalse representations regarding the transactioncard.

On 14 June 2001 the Federal Court grantedinterim injunctions against Greenstar Co-operative Ltd and four of its directors until the


matter is settled. Specifically, a mareva injunctionfreezing the assets of Greenstar and one of itsdirectors, Kevin Robert Smith, except for limitedbusiness and living expenses, was given. AncillaryAnton Piller-type search orders allowing theCommission to inspect the company’s accountsand financial records were also made by consent.Notably, the injunctions also prevent Greenstarfrom inducing any further members joining thescheme. The matter is continuing.

Skybiz 2000 Scheme: Mr Kevin Ryan

On 4 August 2000 the Commission institutedproceedings in the Federal Court, Perth, againstMr Kevin Ryan of Perth, a participant in ascheme called Skybiz 2000 Home BasedBusiness. The Commission alleged thatMr Ryan attempted to induce others to becomeparticipants in the trading scheme promotedby Skybiz.Com.Inc, and to pay Skybiz.Com.IncUS$100 per website to obtain the prospect ofparticipating in the scheme.

Small businessIn its third year of operation the Commission’ssmall business program explored some innovativeways to deliver information to the small businesssector.

It launched the Competing Fairly Forums, aseries of satellite broadcasts to rural andregional towns around Australia. The forumsbuild connections between the Commission,industry and community organisations throughlocal government and business leaders.

The Commission’s small business managers inevery State and Territory continued to developnetworks of contacts in the business community.This provided a two-way flow of information —enabling the Commission to get its message outto the small business sector and, at the sametime, learn which trade practices issues wererelevant to small business operators.

The small business program also produced acorporate video, Fair Game or Fair Go, to explainthe concept of unconscionable conduct. It wassent out to convenors as an introduction beforethe Competing Fairly Forum held in May 2001,which had unconscionable conduct as its topic.

These new high impact ways of informationdissemination complemented the small business

program’s existing work. The Commission’s smallbusiness managers in each State and Territoryconducted numerous seminars and presentationsto industry on the Trade Practices Act in general,and the Franchising Code, unconscionableconduct and the GST in particular. Many ofthese field trips were in rural and regional areas,reflecting the program’s push to increaseawareness of the Act in those areas.

Information programs

Competing Fairly Forums

The Commission successfully produced twoCompeting Fairly Forum satellite broadcasts torural and regional towns throughout Australia.

The broadcasts provided people in regionalcommunities with the opportunity to participatedirectly with the Commission‘s Chairman andCommissioners, and other trade practicesexperts, to have their concerns heard directly.Both broadcasts incorporated a session in whichthe panel responded to questions put byparticipants in the regional towns.

The first broadcast, on 8 November 2000, wasreceived in 28 towns and addressed broad tradepractices issues. The second broadcast, on1 May 2001, was received by 62 towns andaddressed the issue of unconscionable conduct(a topic on which further information was soughtby the participants in the first forum).

Future forums will explore other trade practicesissues which are relevant to the rural andregional sectors.

The forums are supplemented by informationavailable at the website<http://forums.accc.gov.au>.


Small business flyers have been produced ina number of languages. As well as beingdistributed at festivals and presentations theyare now available on the Commission’s SmallBusiness website.

Cooperation with other agenciesand associationsThe small business program further developedits cooperative activities with otherCommonwealth, State and Local Governmentagencies and industry associations that havea business information role.

The Commission liaised regularly with theFederal Office of Small Business, particularly inrelation to the Franchising Code of Conduct.

The Commission also continued to liaise withits Small Business Advisory Group (SBAG) whichcomprises representatives from a wide rangeof business and professional areas. The groupmeets every six months to discuss tradepractices issues affecting small business.

The success of the Commission’s CompetingFairly Forums was largely due to the supportand cooperation of business and industryassociations, community groups and localgovernments.

Building upon the enthusiasm shown in theforums the small business program will beexploring partnership relationships with localauthorities in regional areas.

Rural and regional outreach programThe small business managers in each State andTerritory continued to organise regular seminars,presentations and field trips to increaseawareness and understanding of the TradePractices Act in rural and regional areas.

They attended local trade shows, festivals andbusiness expos giving them further opportunitiesto meet with small business owners.

In the early part of 2000–01 the main area ofconcern to small business was the introductionof the New Tax System. The small businessmanagers worked closely with the Commission’sGST unit and the Australian Taxation Office toensure that small businesses understood theirrights and obligations under the new GSTprovisions of the Act.

Corporate videos

In early 2001 the Commission produced acorporate video, Fair Game or Fair Go, to explainthe legal concept of unconscionable conduct.

The video was released ahead of the MayCompeting Fairly Forum to assist the audiencedevelop an awareness of the key issues that arisein unconscionable conduct.

Both Competing Fairly Forums were also madeavailable as videos.

Communications and publications

During 2000–01 the small business programgave 95 presentations and seminars, andattended 19 expos and trade shows. Field tripscovered over 70 towns in the first part of 2001.Over 100 000 publications were distributed atexpos, trade shows, presentations and throughthe program’s regular mailout.

The second edition of Retail Flash was publishedand distributed in time for Christmas trading.Retail Flash is produced in conjunction with theAustralian Retailers Association and providessmall retailers with concise information on tradepractices issues useful for improving customerrelations.

The communication network of the programwas extended to include rural press and trademagazines where articles and advertisementswere placed on a regular basis. This includedregular columns by the Small BusinessCommissioner, John Martin.

The small business program continued itsregular mailout to small businesses and industryassociations, providing accessible information onspecific trade practices matters for inclusion innewsletters and magazines.

The program also produced and distributed anumber of small business flyers, providing tradepractices information in a concise and easy-to-read format. This included four flyers focusingon recent developments in unconscionableconduct law and the effect of those changeson specific industry sectors (retail tenancy,franchising, financial services and retail supplychain).


Industry codes of conductThe Commission continued in its role ofadministering and enforcing the mandatoryFranchising Code of Conduct.

In October 2000 the Government announcedits response to the review of the code.The review’s findings revealed that the majorityof participants in the franchising industrysupport the continuation of the mandatorycode. The Government accepted the review’sfinding and the code continues to apply tofranchising activities in Australia as a singlegeneric code.

In responding to other recommendationsand conclusions in the review’s findings,the Government foreshadowed that severalmodifications would be made to the codeto make it more flexible.

The legislative amendments were announced on29 June 2001 and they will become operative on1 October 2001.

In early 2001 the small business program beganto take a role in relation to other industry-to-industry codes, including the Code of Conductfor Film Exhibition and Distribution.

Court actions

Franchising Code of Conduct

Australian Industries Group (Half Price Shutters)

Proceedings were instituted in the Perth FederalCourt on 4 September 2000 against AustralianIndustries Group (Half Price Shutters), TonyGulloti (the national manager) and Robert Keirle(a former director). The matter relates to allegedbreaches of the Franchising Code of Conduct.There were also allegations of falserepresentation about profitability andunconscionable conduct.

The Commission is seeking court ordersincluding declarations, injunctions, ordersrequiring the payment of compensation,institution of a trade practices complianceprogram and costs.

Unconscionable conduct

Cheap as Chips Franchising Pty Ltd and anor

Proceedings were instituted on 30 June 1999 inthe Federal Court, Melbourne. The Commissionalleged that Cheap as Chips Franchising Pty Ltdand its director, Mr Peter Hudousek, engaged inunconscionable conduct and contravened themandatory Franchising Code of Conduct.On 14 March 2001 the Federal Court madeorders by consent against the company and thedirector in relation to their dealings with threefranchisees.

GB Berbatis and Ors t/a Farrington Fayre

Shopping Centre

Proceedings were instituted in the Federal Court,Perth, in March 1998 but the trial was adjournedin October 1999 because of concerns about theconstitutional validity of s. 51AA. The sectionwas found to be constitutional on 14 January2000. In September 2000 the court found thatthe landlord and its representatives had engagedin unconscionable conduct against one of thetenants but had not done so in two otherinstances. The owners appealed and theCommission launched a cross-appeal.On 27 June 2001 the Full Federal Courtupheld the appeal by the owners and dismissedthe Commission’s cross appeal. The Commissionhas sought special leave to appeal the decisionto the High Court.

Samton Holdings Pty Limited

Proceedings were instituted in the Federal Court,Perth, in February 1999. On 24 December 1999proceedings were deferred pending thedecision in the Farrington Fayre matter asto the constitutional validity of s. 51AA.On 29 November 2000 the judge concludedthat while the company had struck a hardbargain it fell short of being unconscionable.The court dismissed the Commission’sapplication against the company and the sixlandlords. An appeal was heard before the FullFederal Court on 28 May 2001. The decision isreserved.

Simply No Knead Franchising Pty Ltd

The Commission instituted proceedings on16 June 1999 in the Federal Court, Melbourne.On 17 May 2000 the Supreme Court of Victoriaordered that SNK be wound up in insolvency.


In September 2000 Justice Sundberg of theFederal Court concluded that the conduct bySNK disclosed ‘an overwhelming case ofunreasonable, unfair, bullying and thuggishbehaviour’ against five franchisees thatamounted to unconscionable conduct forthe purposes of s. 51AC of the Act.

Avanti Investments Pty Ltd/Barbaro

On 27 April 2001 the Commission institutedproceedings in the Federal Court in Adelaideseeking injunctions, declarations, findings offact, and orders to vary the market gardeners’agreements so that they are no longerresponsible for the cost of excess water.The first directions hearing is set down forSeptember 2001.


On 3 November 2000 the Commissioninstituted proceedings in the Federal Court,Hobart, against the National Australia Bank(NAB) and a business banking manager inTasmania, Carlton Dixon. The Commissionalleged that the NAB had engaged inunconscionable conduct in obtaining andenforcing a personal guarantee for $200 000from a Tasmanian woman as security for abusiness loan to a company of which thewoman’s husband was a director. At the time theguarantee was executed, the woman’s husbandwas seriously incapacitated with amnesia afteran accident.

On 5 June 2001 the court made ordersby consent declaring NAB had actedunconscionably in obtaining and enforcingthe guarantee; restraining the bank in Tasmaniaand its manager Carlton Dixon from obtainingguarantees without properly explaining theirnature and the need to obtain independent legaladvice before the guarantee is signed; requiringthe bank to notify all lending staff in Australia ofnew lending requirements. NAB also annulled theguarantee, paid $28 500 in damages to theAshtons, and repaid monies recovered in excessof amounts owing on the Ashtons’ homemortgage.

International activitiesThe Commission’s international activitiesare targeted to help other countries achieveeffective competition and consumer protectionregimes and to develop a ‘culture’ ofcompetition to develop more competitive andfair overseas markets, while improving accessfor Australian exporters.

The international impact of the Commission’sinitiatives is substantial given the wide rangeof activities currently undertaken by staff.The focus on this work is also increasing asthe Commission is more often faced withcompetition and consumer protection issueswith an international dimension.

Formal cooperation agreements

On 17 July 2000 the Commission signed abilateral cooperation arrangement with the USFederal Trade Commission (FTC) to facilitateinformation exchange and enforcementcooperation on consumer protection matters.A second agreement gave the Commissionaccess to the US FTC’s complaints handlingdatabase ‘Consumer Sentinel’.

On 26 October 2000 the Commission enteredinto its first tripartite cooperation arrangementwith the Canadian Competition Bureau andthe New Zealand Commerce Commission.The arrangement established a frameworkfor notification, coordination and cooperationon competition and consumer protectionenforcement activities, exchange of informationand avoidance of conflict.

Negotiations with several other competition andconsumer protection agencies around the worldare currently under way. Positive outcomes ofthese negotiations will significantly increase theCommission’s network of formal cooperationarrangements to facilitate information exchange,cooperation and assistance in enforcementmatters, and provide technical assistance toemerging economies.

Cooperation in enforcement mattersThe Commission is increasingly cooperatingwith its international counterpart agencieson competition, consumer protection andregulatory matters to effectively enforce laws inAustralia and overseas. In an environment whereillegal conduct is increasingly of a cross-border


nature, the Commission places enormousimportance on establishing and utilising itsinternational networks to achieve positiveoutcomes for consumers in Australia andoverseas.

Common examples of matters involvingenforcement cooperation over the past yearhave included merger and cartel cases, andinternational lottery and marketing scams.

International forums

OECD

The OECD Competition Law and PolicyCommittee (CLP) and the Joint Group on Tradeand Competition meet three times a year inParis. One of the priority work areas over thepast year has been hard core cartels and theuse of sanctions, leniency policies and otherinvestigative tools, and cooperation betweencompetition authorities to combat the effectsof global cartels.

During 2000–01 round-table discussions wereheld in relation to joint ventures; e-commerce;road transport; compliance programs;transnational mergers; intellectual propertyrights; subsidies and state aid; training programsand telecommunications.

APEC

The Commission continued its activeparticipation in the Asia–Pacific EconomicCooperation (APEC) Competition Law andDeregulation Group. Meetings in 2001 havetaken place under the presidency of the People’sRepublic of China. Work within this groupcontinues to focus on regulatory reform inAPEC economies, technical assistance anddevelopment programs, and capacity buildingand institutional development in the region.

WTO

The Commission continues to take a keeninterest in developments in the World TradeOrganisation (WTO) Working Group on theInteraction Between Trade and CompetitionPolicy. The future of the group is likely to bedetermined at the next WTO ministerial meetingin Doha, Qatar in November 2001.

ISCCO

On 15 and 16 November 2000 the InternationalSociety of Consumer and Competition Officials(ISCCO) conducted its second workshop for theyear in Durban, South Africa. The meeting titled,Governments Delivering Consumer Welfare,was co-chaired by outgoing ISCCO President,Mr Allan Asher and by the new acting President,Dr David Cousins. The workshop also drewdelegates from Argentina, Fiji, Hong Kong, India,Malaysia, Papua New Guinea, South Africa, St.Lucia, Swaziland, Sweden, Trinidad and Tobago,the United Kingdom, the United States, Vietnam,Zambia and Zimbabwe.

The workshop centred around the discussion offour main themes:

• challenges for new competition and consumerprotection agencies;

• taking advantage of network tools;

• addressing issues currently confrontinggovernment regulators; and

• educational strategies — examining tacticsfor educating consumers, business andgovernments on competition and consumerprotection issues.

Technical assistanceThe Commission has been involved in severaltechnical assistance activities in the past year,making available its resources and expertise incompetition, consumer protection and utilityregulation to countries with less developedregimes. One example was the Commission’sinvolvement in a high level briefing on electricityreform in Russia in May 2001 that wascoordinated by the OECD. Mr Michael Rawstron,General Manager of the Commission’s ElectricityUnit, represented the Commission at themeeting.

Another major aspect of the Commission’sliaison and technical assistance work involveshosting visits to Australia by our internationalcounterparts. During 2000–01 the Commissionhosted short-term visits to Australia bygovernment officials from a range of economiesincluding: Argentina, Canada, the People’sRepublic of China, Chinese Taipei, Egypt, Fiji,Germany, Hong Kong, India, Japan, Korea,Lebanon, Macau, Malaysia, New Zealand, PapuaNew Guinea, Peru, the Philippines, Singapore,


Sri Lanka, South Africa, Sweden, the UnitedKingdom, the United States of America, andVietnam.

The Commission has also conducted moreextensive ‘in country’ training in a numberof emerging economies, as outlined below.

Indonesia

The Commission has participated in an ongoingconsultancy project, with funding assistancefrom AusAID, to provide technical assistance tothe Directorate of Consumer Protection of theIndonesian Ministry of Industry and Trade inthe implementation of the Prohibition ofMonopoly Practices & Unhealthy CompetitionLaw. The assistance has included ‘in country’consultancies to develop and define short-termand long-term objectives for the work of theDirectorate.

India

In April 2001 the Commission hosted a visitto Canberra by Mr Pradeep Mehta, Director-General of the Consumer Unity and TrustSociety (CUTS), India. The visit explored andassessed possible future assistance betweenAustralia and India on the implementation of a competition regime in India. Funding for the visit was received from the Australia–IndiaCouncil and also for a consultant to providecomprehensive comments on India’s draftcompetition legislation.

Thailand

A consultancy project in the form of a scopingmission in Thailand was undertaken to assessthe needs of the Trade Competition Commission(TCC), Department of Internal Trade, and toascertain future work that could be undertakenby the Commission regarding theimplementation and enforcement of new tradecompetition law. Funding assistance for theproject was received from AusAID and futuretechnical assistance work is currently beingconsidered by the Commission.

Papua New Guinea

The Commission has been working with thePNG Consumer Affairs Council, again withfunding support from AusAID, to assist in thedevelopment of existing staff and organisationalstructures and resources to cope with theimplementation and administration of proposednew trade practices legislation. Discussions havebeen held with PNG Treasury and the NationalPlanning Office on the implementation of anational competition policy and introductionof a PNG competition and consumer law.

South Africa

Over the past year the Commission has hadofficers from the South African CompetitionCommission and Competition Tribunal attendseveral of its investigations training courses inCanberra. This training assistance is part ofa broader program of support from theCommission to assist in the development of aneffective competition regime in South Africa.

Phil ippines

With funding assistance from AusAID, theCommission is currently undertaking anextensive consultancy project for thedevelopment of a consumer movement inthe Philippines. The project involves a diverserange of deliverables including the purchaseof extensive IT equipment; development of awebsite; work placements in Australia to learnhow the consumer movement operates here;preparation of position papers on issues ofconcern for Filipino consumers; conducting presscampaigns on consumer issues; and holdingregional conferences for consumer groupsthroughout the Philippines.

An important output of the project is thedrafting of legislation for the Philippines.Amendments to the existing Consumer Act havebeen drafted to allow consumers to take actionat a local court level for possible contraventionof the Consumer Act. The project has alsoinitiated the drafting of the country’s firstcomprehensive competition legislation.





• Merger proposals likely to have an anti-competitive effect opposed or authorisedwhere there is sufficient public benefit.


Why is the Commissionconcerned about mergers?Mergers perform an important role in theefficient functioning of the economy. They allowfirms to achieve efficiencies such as economiesof scale, synergies and risk spreading. They alsoencourage an active ‘market for corporatecontrol’ in which under-performing firms andmanagers are replaced by better ones.

However, in some cases mergers may also haveanti-competitive effects by altering the structureof markets and hence the incentives for firms tobehave competitively. This is the concern of theAct and the Commission.

Mergers

C h a p t e r

4


The primary reason for this concern aboutmergers and joint ventures, especially betweendirect competitors, is that they increase thelikelihood that the merged firm could set pricesabove the competitive level, or otherwise distortcompetitive outcomes, either alone or incoordination with other firms in the samemarket.

Merger and acquisition analysis constitutesan important part of the Commission’s work.The Commission’s role in mergers andacquisitions arises from s. 50 of the TradePractices Act, which prohibits an acquisitionif it has the effect, or would be likely to havethe effect, of substantially lessening competitionin a market.

This test explicitly recognises the link betweenmarket structure and market power, and theneed to respond to potential threats arising fromthe exercise of unilateral or coordinated marketpower. The Commission also examines jointventure arrangements within the sameconceptual framework.

National champions argumentIt is often argued that Australian industriesneed to develop the critical mass necessary tocompete internationally. However, obstacles toexport growth may face industry participantsof all sizes. It is not apparent that, simply byentering a collaborative arrangement like amerger or joint venture, a participant’s abilityto compete internationally is enhanced. Size isoften not necessary to be able to compete onworld markets.

Internationally competitive businesses are morelikely to develop when there is effective domesticcompetition, rather than national dominance.In many cases, domestic rivalry rather thannational dominance is more likely to breedbusinesses that are internationally competitive.When firms merge with the aim, for instance,of enhancing exports, domestic prices may riseuntil they reach import parity (if the goods werepreviously priced below import parity) whileexports are at a lower price. A merged entitymay use its market power to increase domesticprices and so subsidise its export price.Ultimately, Australian consumers and industrymay be forced to pay a higher price to underpinthe merged entity’s export sales.

It is more likely that intense domesticcompetition leads to dynamic gains as firms areforced to improve and innovate while actionsthat limit competitive pressure may actually leadto poorer export and international performance.

The Commission’s publication, Exports and theTrade Practices Act, identifies the argumentsthat the Commission considers most relevantto claims for mergers that will enable Australianfirms to operate effectively in world markets.The Act is a flexible piece of legislation thatallows for the use of s. 87B undertakings,authorisation, or the formation of collaborativearrangements for export that fall within theprotection of s. 51(2)(g) of the Act.

Sometimes the trade off between loss ofcompetition in the home market and benefitsto Australia from a firm playing a role in worldmarkets is unfavourable in terms of the publicinterest. And while in some cases mergers createmonopolies or ‘home champions’ in the homemarket, they are not necessarily firms wellprepared to compete in world markets.

The Commission takes full account of real andpotential import competition and does notoppose mergers when imports can be shownto provide effective discipline on domesticbusinesses. The Commission also assesses thedynamic market factors affecting a particularentity, including the international environmentin which the company operates. Examplesinclude the marketing arrangements betweenBega Cheese, Bonlac Foods and the NewZealand Dairy Board; the acquisition of NorthForest Products by Gunns; and Southcorp Wines,acquisition of Rosemount Estates.

Year in reviewKey statisticsIn 2000–01 the Commission considered 265mergers, asset sales and joint ventures. Of theseit objected to 13 on the basis that they werelikely to substantially lessen competition. Tenof these proceeded following the provision ofenforceable undertakings under s. 87B of theAct. The remaining three were withdrawnfollowing Commission objection. Another majormatter was withdrawn before decision followingexpressions of Commission concern.


As the chart illustrates below the number ofmerger matters examined by the Commission hassteadily risen over the past few years. The chartalso shows that the Commission only opposes asmall percentage of mergers brought to itsattention. In fact the proportion of mergerswhich the Commission believes substantiallylessen competition has remained roughlyconstant at 4–5 per cent a year.

300

250

200

150

100

50

01993–94 1994–95 1995–96 1996–97 1997–98 1998–99 1999–2000 2000–01

Resolved Opposed Not opposed

1 5 5 5 5 5

71

7 7

101

3 39

105

2

140

6

165

10

168

4 10

226

252

Figure 4.1. Mergers not opposed, opposed and resolved with the ACCC


The past year saw major activity in theresources, building materials, airlines,agribusiness and supermarket sectors.Most mergers in the resource sector raised littleconcern given its global nature. High levels ofimports or internationally set prices mitigatedmany of the concerns about increasedconcentration.

The building material industry continues toachieve efficiencies and maintain competitivenessthrough mergers and joint ventures. TheCommission considered several proposals,some of which were not completed becauseof commercial considerations. There remainsconsiderable activity in the concrete andassociated quarrying and aggregates sectors.Tolling and other joint arrangements continueto be proposed and this activity is likely tocontinue.

The airline industry was shaken by the problemsencountered by regional airlines and newentrants to interstate routes. The outcome ishigher concentration in the hands of the twomajor airlines. The Commission obtaineds. 87B undertakings to ameliorate competitionconcerns, especially regarding slot accessat Sydney airport.

The agribusiness sector is also being influencedby structural change, international tradingpressure and deregulation. The milk industry(fresh and manufactured product), grainhandling, storage and trading, timber, and ruralmerchandise wholesaling, distribution andretailing were all areas in which the Commissionwas involved in the past year.

The demise of Franklins was of major concernto many in the supermarket industry, as itscompetitive impact, along with the independentsector, has always been viewed as an importantcounter and alternative to the major chains.The Commission accepted undertakings toaddress concerns about the competitive effectof the sale of Franklins stores. Major chainsin the wine and liquor retailing sector haveattempted to consolidate their positions.Several smaller independent chains have beenacquired by the majors and this activity showsno signs of abating.

A breakdown of mergers by industry is outlinedbelow. The highest number of mergers occurredin general manufacturing (23 per cent) andsecond highest was finance, banking andinsurance with 15 per cent. Although healthand associated services accounts for only 8per cent, this is higher than previous years andis expected to continue to rise.

Figure 4.2. Percentage of mergers by industry

Health and associated services8%

Mining/Foresting10%

Communications11%

Transport5%

Computer industry3%

Other 6%

Energy6% Finance/Bank/Insurance

15%

Food industry/Produce13%

General manufacturing23%


The Commission is pleased to note the fourstar rating of its merger handling by theGlobal Competition Review. The rating endorsesthe Commission’s approach to its mergerresponsibilities — the general consensus beingthat staff are well prepared and the overallprocess is handled efficiently and speedily.

International liaisonAnother recent trend has been a majorincrease in the number of global mergers,with commentators forecasting this continuing,particularly in sectors driven by technologicalchange or when economies of scale need tobe achieved. Examples include resource-basedindustries, pharmaceutical industries and mediaand finance. Mergers such as De Beers/AshtonMining, Metso/Svedala, Glaxo Wellcome/Smithkline Beecham and Warner Music/EMI havegenerated competition issues in many countries.Australian companies have also engaged insubstantial overseas acquisitions, such asBHP/Billiton.

Consequently, the level of contact between theCommission and overseas agencies on mergermatters has grown. Agencies have also discussedmergers which may not have been transnationalin character, but about which they have beenable to provide information, especially regardingmarket definition. The Commission hasparticularly valued information about the gas,electricity and telecommunications industriesfrom EU, UK and US authorities.

In assessing De Beers, proposed acquisition ofAshton Mining Limited, the Commission liaisedwith the Canadian, United States and EuropeanUnion competition authorities. Liaison withthe EU was particularly extensive and useful,allowing the Commission to develop a betterunderstanding of the global trade in diamonds.

Contact with overseas jurisdictions was alsoused extensively in assessing the global rock andmineral processing equipment merger betweenMetso and Svedala. In this case the EU obtaineddivestiture orders from the parties which greatlyreduced the anti-competitive impact of thetransaction worldwide and on Australian markets.

Future outlook and priority areasThe Commission expects the increase in mergeractivity to continue. Many factors, largelyoutside the direct control of the Commission,have driven this growth and will continue todo so. They relate mainly to the commercialdomestic and international business environmentand include the effect of continuingderegulation, privatisations and asset sales, theimpact of a more liberal trading environment andrapid, sometimes extreme, technological change.

There is likely to be a push for increasedconsolidation in several already concentratedindustries and in the recently disaggregatedutilities. Pressure is likely to continue arisingfrom convergence and cross ownership in manyindustries, with the utilities again prominent.

Industry areas of particular priority to theCommission are likely to be financial services,telecommunications and broadcasting, electroniccommerce, transport and energy. The healthsector, which is currently undergoing significantstructural change, is also of major interest.Consolidation is likely to accelerate in areassuch as medical practices, ancillary services(pathology, radiology) and private hospitals,with vertical arrangements in the broaderindustry more likely to come under closerscrutiny.

Agribusiness continues to experienceconsiderable pressure to restructure and,in many instances, consolidate.

Section 87B undertakingsWhen the Commission has had concerns aboutthe competitive implications of a proposalit has generally accepted court enforceableundertakings addressing those concerns.Section 87B undertakings are an importanttool under the Trade Practices Act to improvecompetition and efficiency in markets. They area flexible alternative to the Commission simplyopposing an acquisition that is likely tosubstantially lessen competition.

The Commission looks most favourably onproposed undertakings that address structuralissues in the relevant market. Structural solutionscan promote long-term competitive markets.Regulatory costs are one-off and do not requirea permanent or semi-permanent role for the


Commission. The divestiture of particular assetsor divisions of the merged company maysometimes remove competitive concerns.

Over the past year the Commission accepteds. 87B undertakings for 10 matters, listed belowin table 4.1. The Commission keeps a publicregister of s. 87B undertakings granted andfurther details are available in the ACCC Journal.

Major merger matters assessed

Smorgon Steel Group Limited and Email Limited

On 1 June 2000 the Commission announcedit would not oppose Smorgon Steel GroupLimited’s proposal to acquire Email Limited.

Smorgon and Email are major distributorsof metal products in Australia. Together theyaccount for about 50 per cent of all metalproducts distributed. BHP accounts for another25 per cent and small, independent distributorsthe remaining 25 per cent.

In assessing the likely competitive effects ofthe acquisition the Commission considered theeffect that importers and imported product playin the market, the relatively homogeneous nature

Acquirer Target Date accepted

Smithkline Beecham Holdings 6 July 2000

Glaxo Wellcome Australia Pty Ltd (Australia) Pty Limited

BP Australia Ltd Burmah Castrol Australia 7 December 2000

Mayne Nickless Ltd Australian Hospital Care 29 January 2001

PaperlinX Spicers Paper Ltd 30 January 2001

Wesfarmers Dalgety Limited IAMA Limited 8 February 2001

Ansett Hazelton Airlines Limited 8 March 2001

Smorgon Steel Group Ltd Email Limited 20 March 2001

Qantas Airways Limited Impulse Airlines 21 May 2001

Woolworths Limited Dairy Farm/Franklins 7 June 2001

Gunns Ltd North Forest Products 21 June 2001

Table 4.1. Section 87B undertakings relating to mergers and acquisitions accepted by the ACCC in 2000–01

of the commodities involved and the barriers toentering the metals distribution market.

Although the Commission considered that theacquisition would result in a high degree ofconcentration, it concluded that the continuedpresence of a large, vertically integratedcompetitor in BHP, together with the existingand potential import competition, was likelyto ensure that the merger did not result in asubstantial lessening of competition.

Joint bid by Smorgon Distribution Limited

and OneSteel Limited for Email Limited

Following the Commission’s acceptance ofSmorgon Steel Group’s bid for Email theproposal was varied when Smorgon entered


into an agreement with OneSteel Limited inOctober 2000. The agreement involvedbreaking up Email’s metals distributionbusinesses between Smorgon and OneSteel andthe sale of Email’s other businesses (whitegoods,metering and security).

In response to the Commission’s concerns aboutthis proposal, the parties offered undertakingslimiting their ability to exchange information,setting deadlines for the division of assets andrequiring some assets to be sold rather thandivided between the parties. On the basis of theundertaking offered, the Commission decided on16 January not to oppose the acquisition. Theundertaking was finalised on 21 February 2001.

Mayne Nickless Limited and Australian

Hospital Care

On 30 January 2001 the Commissionannounced that it had decided not to intervenein the proposed acquisition of AustralianHospital Care (AHC) by Mayne Nickless Limited(MNL) on the basis of undertakings provided byMayne Nickless to divest four of the AHChospitals.

The Commission had already informed MayneNickless that the acquisition, as it was originallyproposed, was likely to result in a substantiallessening of competition. After the acquisitionMNL would have had almost 90 per cent marketshare on the Gold Coast and 40 per cent inMelbourne. Without it, AHC would remain asa competitor to MNL with equivalent capacityand coverage in the relevant regions. TheCommission considered that the merged entitycould increase prices or reduce the level ofservice quality.

MNL subsequently offered undertakings to theCommission to divest four hospitals: Allamandaon the Gold Coast and Northpark, Mitcham andSouth Eastern in Melbourne. On the Gold Coastthe undertaking will maintain current marketconcentration levels. In Melbourne the proposeddivesture will reduce the merged entity’s marketshare of private hospital beds in metropolitanMelbourne to about 30 per cent and preventhigh concentration levels in localised areas.

The divestitures mean that health insurers willhave an option other than Mayne Nicklesswhen negotiating hospital purchaser provider

agreements, constraining the ability of themerged firm to increase prices. The Commissionconsidered that the proposed divesturesatisfactorily addressed its competitionconcerns.

BP Amoco and Burmah Castrol

On 6 July 2000 the Commission announcedthat it would not oppose BP Amoco’s acquisitionof Burmah Castrol.

The main competitive overlap between BPAmoco and Burmah Castrol was in themanufacture and supply of lubricant productsand in fuel retailing.

The Commission found that numerous otherlubricant manufacturers competed with BPAmoco and the other domestic oil refiners.It concluded that competition in the retailmarket for automotive lubricants is quite intenseand was unlikely to be diminished by this mergeras BP Amoco had not aggressively marketed itsown brand lubricant products in Australia.

Most of the business of Burmah Castrol’sretail fuels business, Burmah Fuels, had beentransferred to other parties before theacquisition was completed. Its wholesale fuelsbusiness had been sold to international oiltrader, Trafigura. Control of around half of theretail fuels network had been transferred to7-Eleven, and various other retail outlets hadbeen sold.

However, the Commission had concern aboutBP Amoco’s continuing interest in a numberof Burmah Fuels’ retail service station sites.BP Amoco agreed to an undertaking relatingto divestiture of those sites. By the end of June2001 BP Amoco had divested its interest in 25former Burmah Fuels sites.

Wesfarmers and IAMA

On 8 February 2001 the Commissionannounced that it would not opposeWesfarmers’ proposed acquisition of IAMA butonly after significant undertakings were providedby the parties.

Wesfarmers Dalgety is a fully owned subsidiaryof Wesfarmers. IAMA and Wesfarmers Dalgetyare two of the largest rural merchandisewholesalers and retailers in Australia.


The Commission had concerns that theproposed merger would substantially lessencompetition in several markets for farming inputsin Western Australia.

The distribution of fertiliser in Western Australiawas a primary concern. CSBP was the dominantsupplier of fertiliser to grain farmers in WA.CSBP along with Wesfarmers Dalgety was ownedby Wesfarmers. CSBP was distributed throughthe Wesfarmers Dalgety, Elders and RTC ruralmerchandise retail networks. CSBP’s maincompetitor in the market for fertiliser in WAwas Summit Fertilisers. The primary distributorfor Summit in WA was IAMA, which until August2000 had also been Summit’s exclusivedistributor.

The Commission had serious reservationsabout allowing the situation to develop wherebyWesfarmers not only owned the dominant brandof fertiliser in CSBP, but also took majorityownership of IAMA, the primary distributorof CSBP’s main competitor in Summit.

The Commission accepted an undertaking fromthe parties that the new business in the next twoyears would take no steps to constrain the termson which the agents and affiliates of the newbusiness deal with fertiliser suppliers and wouldcontinue the existing distribution agreementbetween IAMA and Summit.

The Commission was also concerned by thehigh level of market concentration that a mergedWesfarmers Dalgety and IAMA would have inherbicides and animal health and nutritionproducts and the possible ramifications thiscould have on competition for these productsin Western Australia.

These concerns were addressed through anundertaking by the new business to sell one ofthe two rural merchandise outlets that it wouldhave had in Esperance, Katanning, Merredin,Narrogin and Geraldton. The new businesswas required to sell to another retailer of ruralmerchandise unaffiliated to the new business.

Woolworths Limited and Franklins Limited

On 22 May 2001 the Commission announcedthat it had reached in-principle agreement withFranklins Limited and Dairy Farm ManagementServices Limited for the sale of stores in the

Franklins supermarket chain. The Commissionagreed, subject to being given appropriateundertakings, not to intervene in the sale of 67stores to Woolworths Limited and the balanceof 200 stores being offered to the independentsector. The Commission considered that theproposal would facilitate the entry of two newplayers, Foodland Associated Limited and Pick‘n Pay, into the eastern Australian supermarketindustry. The Commission believed the proposalgave independent grocery retailers in Australia amajor boost and provided a strong competitiveforce in the supermarket industry.

On 7 June 2001 the Commission announcedthat it had accepted s. 87B undertakings fromDairy Farm, Franklins and Woolworths. Theyprimarily deal with issues such as the utilisationof brands owned by Franklins, the number ofstores to be acquired by various purchasersand a requirement for Woolworths to divest anumber of stores. The Commission thereforedecided not to oppose the proposal.

Qantas Airways Limited and Impulse Airlines

Holdings Limited

Qantas Airways Limited and Impulse AirlinesHoldings Limited publicly announced a proposalto enter into a commercial arrangement on1 May 2001.

Impulse claimed that it was a failing firm andwould become insolvent on 14 May 2001.The Commission independently evaluated thisclaim and concluded that the withdrawal ofsupport by certain investors had preventedImpulse from remaining viable.

The likely failure of Impulse and the lack ofalternative buyers led the Commission toconsider the impact of two alternatives onlonger term competitiveness in domesticaviation. These alternatives were to allowImpulse to go into receivership or allowQantas to acquire the company.

After extensive evaluation the Commissionconcluded that while the acquisition wouldlessen competition, the competition concernscould be addressed by undertakings. Underthe other alternative, that is a receivership forImpulse, a less competitive outcome was likely.


The undertakings accepted from Qantasaddress the Commission’s concerns by includingassurances on access to peak slots (7 a.m. to9 a.m. and 5 p.m. to 7 p.m.) to enable new andemerging airlines to compete more effectively oninterstate trunk routes.

On routes operated only by Qantas andImpulse, Qantas provided an undertaking aboutmaintaining services (with regard to frequencyand capacity) and restrictions on airfareincreases.

The Commission also welcomed the commitmentmade by Qantas to the Tasmanian Governmentto maintain services to Tasmania.

After taking into consideration the undertakings,the Commission decided not to oppose theproposed merger.

PaperlinX Limited and Spicers Paper Ltd

On 30 January 2001 the Commission accepteda court enforceable undertaking from PaperlinXto address concerns about its proposedacquisition of Spicers.

The undertakings include the divestiture ofthe Edwards Dunlop and Commonwealth Papermerchant businesses. It also secures the transferof a major brand name to the Edwards Dunlopbusiness. PaperlinX has also agreed in theundertakings to a process for assessing futureanti-dumping complaints.

The undertakings follow the Commission’sdecision late last year that the original proposedacquisition was likely to breach s. 50 of theTrade Practices Act by substantially lesseningcompetition in the market for the supply of finepaper by merchants.

For the next three years the undertakingsstipulate that before PaperlinX can lodge ananti-dumping application, it has to obtain anopinion from an independent adviser on theapplication’s prospect of success. Theindependent adviser must certify that theproposed anti-dumping application is notfrivolous or vexatious.

The Commission has sought these undertakingsto ensure that the divested entity will be a viableand vigorous competitor in the fine paperindustry.

Medical Imaging Australasia (MIA) and Benson

Radiology

On 23 May 2001 the Commission announcedthat it would oppose the bid by Medical ImagingAustralasia (MIA) to acquire Benson Radiology.

Benson Radiology is one of three main privateradiology practices in the Adelaide region alongwith Perrett Medical Imaging and Dr Jones &Partners. MIA already owns Perrett MedicalImaging.

Overall, the Commission found that theproposed acquisition would lead to a substantiallessening in competition for the provision ofradiology services to private patients in theAdelaide region.

The proposed acquisition would have given MIAmore than 50 per cent market share for privatepatients in Adelaide.

The Commission was concerned that barriers toentry for the provision of radiology services arehigh.

During market inquiries the Commission foundthere was limited competitive overlap betweenprivate radiology practices and public hospitalradiology departments. The Commissiontherefore believes that public hospital radiologydepartments would not provide an effectivecompetitive constraint against the conduct ofthe merged entity.

Ultimately the Commission was concerned thatthe proposed acquisition would result in higherprices for radiology services for private patientsin Adelaide. The Commission decided to opposethis acquisition.

Cable & Wireless Optus Limited

C&W Optus announced a strategic review ofits business in mid-2000. In early 2001 threebidders emerged for its business: SingaporeTelecom, Vodafone Pacific and Telecom NewZealand.

Singapore Telecom

On 26 March 2001 SingTel announced it hadreached agreement on the terms of an offer toacquire C&W Optus. The Commission decidedon 10 April 2001 that it would not oppose theacquisition. Given that SingTel’s acquisition ofC&W Optus essentially represents new entry


into the Australian telecommunications industryreplacing the company, and consequently willnot change the structure of any market in whichC&W Optus currently competes, the acquisitionis unlikely to substantially lessen competition inany Australian telecommunications market.

Vodafone Pacific

Vodafone proposed to retain Optus Mobiledivision, on-sell Optus’ other business divisions,and divest mobile subscribers and assets toHutchison. While the Commission did not reacha final view on Vodafone’s proposal, it did havesignificant competition concerns about theproposal. In particular, the Commission wasconcerned that Vodafone’s acquisition of Optus’mobile business would substantially lessencompetition in the national market for mobiletelephony services because the acquisitionwould:

• remove one of only three national mobilenetwork operators from the market;

• result in a market structure whereby togetherVodafone and Telstra would jointly controlmore than 98 per cent of all subscribers whileOne.Tel and Hutchison, the only other mobilenetwork owners in Australia, would account forless than 2 per cent of all subscribers; and

• remove the most vigorous provider ofwholesale mobile services from the market.

Before the Commission reached a final view onVodafone’s proposal, Singapore Telecom andOptus announced agreement on the terms ofan offer to acquire Optus. Singapore Telecom’sacquisition does not raise competition concernsunder s. 50.

Telecom Corporation New Zealand

TNZ proposed to acquire C&W Optus’ threebusiness divisions: Optus Mobile, Data andBusiness (D&B), and Consumer and Multimedia(C&M), and on-sell D&B and C&W, whileretaining Optus Mobile.

The Commission acknowledged that TNZproposed to on-sell D&B. At the same timethe Commission also noted that, because ofthe nature of the transaction, TNZ would for aperiod of time, own the whole of CWO, includingthe D&B division. The Commission wasconcerned about the potential for a significantdegree of overlap between the D&B businesses

of TNZ and AAPT. Although the Commissiondid not oppose the proposed acquisition, itdid express the opinion that these concernscould potentially require s. 87B undertakings.However, since Singapore Telecommunicationssubsequently made an offer for CWO on26 March 2001, further analysis of TNZ’soffer was no longer necessary.

Howard Smith Limited and OPSM Protector

Limited

The Commission found that within the industrialsafety equipment market, the merged entity — ifHoward Smith Limited acquired OPSM ProtectorLimited — would hold a market share of about42 per cent.

However, the market is characterised bysubstantial levels of imports and the barriers toentry are not high. The Commission also foundthere were many alternate suppliers who couldaccess increased volumes of product fromforeign suppliers if the merged entity raisedprices.

The Commission also found that direct supplyby manufacturers provided a significantcompetitive constraint and that the largenumber of major customers possessed asignificant countervailing power.

The Commission concluded that the proposedacquisition would not substantially lessencompetition and decided not to intervene inthe proposed acquisition.

PMP and IPMG

PMP and IPMG, two companies involved incommercial printing, magazine publishingand magazine distribution, approached theCommission in February 2001 proposing tomerge their companies.

After extensive market inquiries the Commissiondecided that the merger would lead to asubstantial lessening of competition in thenational markets for heat-set web printingservices and for distribution of consumermagazines to retail outlets.

Heat-set web printing is used to print largecirculation and glossy magazines, retailcatalogues and many newspaper inserts.The two companies had a combined market


share of over 75 per cent. Heat-set web printingis the only form of commercial printing thatcan quickly produce large circulation retailcatalogues and consumer magazines of therequired quality in sufficient volume.

Entry barriers to this market are high andimports are generally unviable. Substitutes suchas cold-set web printing or sheet-fed printingare relevant only at the margin. Moreover therewas evidence that the merging parties competedvigorously with each other, and appeared to beeach other’s greatest competitive constraint.

In magazine distribution the merging parties hada combined market share in excess of 50 percent, with much of the remainder controlledby a subsidiary of Australia’s largest magazinepublisher, ACP.

Distribution involves functions such asallocation, packaging, billing and merchandising.Scale was found to be a major barrier to entry.Comprehensive new entry involving thesefunctions would have to occur instantaneouslyacross all of Australia, or else publishers wouldnot be interested in using a new distributor.New entry would probably also involvesubstantial costs.

The merged entity’s vertical integration ofpublishing and distribution posed significantproblems for publishers. This was because theentity would be a major competitor to manysmaller publishers that may have to rely on itto distribute their magazines.

The Commission therefore decided to opposethe merger.

Adsteam Marine Limited and Howard Smith

In March 2001 Adsteam Marine Limitedannounced that it proposed to acquire thetowage interests of Howard Smith Limited.

Based on the view that Australian ports generallyrepresent separate markets, the acquisition ofHoward Smith’s Victorian towage operationstransferred market power from Howard Smith toAdsteam in the ports of Melbourne, Westernportand Geelong.

In the other relevant ports where Adsteam andHoward Smith had joint venture operations,Adsteam was already the managing shareholderof most of these towage operations. TheCommission considered it was unlikely that thechange in the shareholding of the joint venturetowage operation in each relevant port wouldcause a substantial lessening of competition.

Accordingly, the Commission concluded in April2001 that the acquisition was unlikely tosubstantially lessen competition.

Amatek Limited and WESFI Limited

On 9 January 2001 the Commission decidedthat it would not oppose the acquisition ofWESFI Limited by Amatek Limited.

WESFI’s principal activities are the manufactureand distribution of particleboard, mediumdensity fibreboard and high-pressure laminates.The Amatek Group is a diversified buildingproducts manufacturer involved in decoratedproducts, raw boards, concrete constructionproducts, roll-formed steel products, insulationand glass fibre products.

The Commission decided that the proposedacquisition was unlikely to result in a substantiallessening of competition in any Australianmarket. The main reasons for the Commission’sdecisions were:

• Carter Holt Harvey (CHH) would potentiallyprovide a significant constraint to the mergedfirm — it is relevant that Amatek has sourceda substantial part of its particleboardrequirements from CHH and this may bemet, post-acquisition, by WESFI;

• following the particleboard supply agreementbetween CSR (acquired by CHH in May2000) and Amatek, Amatek’s onlymanufacturing operations involved laminatingof raw particleboard into decorativeparticleboard;

• low entry barriers exist into the laminatingof raw into decorative particleboard; and

• likely expansion of capacity by Hendersonwho is also a manufacturer of particleboard.







The welfare of Australians may be enhanced insome cases by anti-competitive conduct, whenthe public benefits outweigh the costs of thatconduct.

The adjudication process involves assessing thepublic benefits and detriments resulting fromcertain anti-competitive practices. When thereis a net public benefit the Commission maygrant statutory immunity from legal proceedingsunder the Act. As such, the adjudication role isessential in achieving the Commission’s objectiveto improve market processes.

The Commission is responsible for processingand examining authorisation applications(those relating to electricity and gas distributionand marketing are dealt with in the RegulatoryAffairs chapter), notifications of exclusive dealingand the rules for certification trade marks.The Commission aims to:

• assess applications and notifications in atimely and informed manner;

Assessing thepublic benefit

C h a p t e r

5


• provide a high level of quality in analysis; and

• ensure decision making is undertaken in atransparent and consultative manner.

AuthorisationAuthorisation provides protection from courtaction by the Commission or any other party forpotential breaches of the competitive conductprovisions of the Act. The Commission can onlygrant authorisation if it is satisfied that there isa net public benefit from the conduct, and onlyafter it has conducted public consultation andassessment.

The Commission cannot compel parties toseek authorisation but it does have a statutoryobligation to rule on the applications it receives.It can revoke or review any authorisation itbelieves was granted on the basis of false ormisleading information, or that containsconditions that have not been complied with,or when circumstances have changed materiallysince the authorisation was granted.

NotificationsThe notification process applies only to exclusivedealing conduct. It provides similar protectionto an authorisation although the procedure isdifferent. Immunity takes effect from the timewhen the notification is lodged (or soon after inthe case of third line forcing). The Commissioncan revoke this immunity if it considers thepublic detriments are not outweighed by thepublic benefits.

Certification trade marksThe Commission is also responsible for assessingthe rules for the use of certification trade marks(CTMs) under the Trade Marks Act. In assessingCTMs the Commission must be satisfied that:

• the owner or approved certifiers arecompetent to certify that the goods orservices meet the required standard; and

• the rules governing the use of the CTM:

(i) would not be to the detriment of the public;and

(ii)are satisfactory having regard to theprinciples relating to: restrictive tradepractices in Part IV of the Act;unconscionable conduct in Part IVA;and unfair practices and product safetyinformation in Part V.

Table 5.1. Authorisation applications, notifications and CTMs 2000–01

Authorisation applications

Opening New Applications Applications Balance at

balance applications withdrawn decided end of year

Authorisation applications 24 (64) 24 (53) 5 (5) 15 (30) 28 (82*)

Minor variation applications 4 (8) 29 (32) - 27 (34) 6 (6)

Revoke and substitute 2 (8) 3 (3) - - (6) 5 (5)

authorisation applications

Total 30 (80) 56 (88) 5 (5) 42 (70) 39 (93)

Figures in brackets indicate total applications including electricity and gas matters.

* Total figure includes 43 applications relating to electricity distribution and marketing arrangements and 11 applications relating to

gas distribution and marketing arrangements.


Opening balance New notifications Withdrawn Decided Balance

38 345 2 318 63

Australian Competition Tribunal applications for review

Opening balance New applications Withdrawn Decided Balance

1 - - 1 0

Certification trade marks

Opening balance New applications Withdrawn Decided Balance

39 19 2 11 45

Notifications

Year in reviewDuring 2000–01 the Commission received53 applications for authorisation and 345notifications for exclusive dealing. It made 30determinations, none of which were appealedto the Australian Competition Tribunal.

The Commission has continued to receiveapplications relating to distribution andmarketing arrangements in the gas andelectricity industries, especially those relatingto the national electricity market. These arediscussed in chapter 6.

Excluding gas and electricity the Commissionreceived 24 new authorisation applications,29 applications for minor variations ofauthorisations and three applications forrevocation and substitution of authorisationspreviously granted.

The Commission’s adjudication workload hasbecome increasingly complex reflecting theimpact of industry deregulation and competitionpolicy reform on areas once beyond the reachof the Act. The main adjudication issues thatemerged during 2000–01 resulted fromauthorisation applications and are outlinedbelow. Some of the major authorisationsconsidered by the Commission are discussedat the end of this chapter.

Rural and regional Many businesses, particularly in the rural sector,have used the authorisation process to adjustfrom a regulated to a more competitiveenvironment. Applications for authorisationsfrom the rural sector, especially collectivebargaining arrangements by producers with theirprocessors, have generated substantial work forthe Commission this year, and this trend isexpected to continue.

For example, the Commission received twoapplications for authorisation last year followingfull deregulation of the dairy industry in July2000. The first, lodged by Premium Milk Supplyand given draft approval by the Commission,involved the collective negotiation of farm gatemilk prices and milk quality standards by fivecooperatives representing 430 dairy farmerswith Pauls Limited in Queensland. A second, andpotentially much broader reaching application,was lodged by the Australian Dairy Farmers’Federation (ADFF), and is currently beingconsidered. The ADFF application is seekingauthorisation to allow:

• the ADFF to undertake contractualnegotiations with a dairy company on behalfof groups of dairy farmers, at their request;and

• any group of producers to negotiate collectivecontractual terms and conditions (includingprice) for the supply of milk to a dairycompany without the ADFF’s involvement.


During the year the Commission also grantedauthorisation to allow for collective negotiationsbetween Victorian chicken growers and theindividual processors to whom they supply inaccordance with a code of conduct, following anapplication by Marven Poultry. Authorisation wasalso granted for agreements for the collectivesupply of sugar cane by CSR-contracted growersto CSR mills in Northern Queensland.

Health and the professionsAs the Commission focuses more on anti-competitive conduct in the professions, thenumber of applications for authorisationhas increased from organisations involvingprofessional or occupational associations,particularly in the health sector.

On 1 November 2000 the Commission receivedtwo applications from the New South WalesDepartment of Health relating to its policy forproviding pathology services in public hospitals.

On 24 November 2000 the Royal AustralianCollege of Surgeons (RACS) applied forauthorisation of its processes in:

• selecting, training and examining surgicaltrainees in each of the nine specialities inwhich it conducts training;1

• accrediting hospital posts as being suitablefor training surgeons; and

• assessing the qualifications of overseas-trainedpractitioners.

RACS lodged a supporting submission on30 March 2001. On 2 May the Commissiongranted interim authorisation to RACS until itissues a draft determination or 31 December2001, whichever is the earlier, at which time theinterim authorisation will be reviewed.

RBA/ACCC joint studyIn October 2000 the Commission and theReserve Bank of Australia published the resultsof a joint study of interchange fees and accessin Australia’s debit and credit card schemes.Interchange fees are the fees banks charge eachother to process ATM, EFTPOS and credit cardtransactions between financial institutions.

The report found that the price signals andcompetitive responses that would be expectedto keep interchange fees in line with costs havenot worked effectively. Interchange fees for ATM,EFTPOS and credit card transactions were allsignificantly above the costs of providing theseservices.

Credit card interchange fees were of particularconcern to the Commission because of the wayin which these fees are collectively set by thecredit card schemes’ Australian member financialinstitutions.

The Commission and the RBA both havelegislative responsibilities for competition issuesin Australia’s payments system. In March 2001,following extended negotiations with Australia’smajor banks about a possible authorisationof reformed credit card interchange feearrangements, the Commission recommendedthat the RBA consider using its regulatorypowers to reform credit card scheme interchangeand membership arrangements. The Commissionbelieved this was the most timely and effectiveway to reform the arrangements.

Consequently, in April 2001 the RBA‘designated’ the Visa, MasterCard and Bankcardschemes in Australia as being subject to theRBA’s regulatory powers under the PaymentSystems (Regulation) Act 1998. TheCommission will continue to liaise closely withthe RBA to promote an efficient and competitivepayments system.

Review of past authorisationsThe Commission also reviews pastauthorisations, many of which were not timelimited. Since many of the early authorisationswere granted, microeconomic reform, industryconcentration and technological change havesignificantly altered the operating environmentof many industries.

In consultation with the International AirTransport Association (IATA), the Commissionhas begun a review of authorisations granted15 years ago covering IATA’s activities. Oneoutcome was an application in May 2001 byIATA for revocation of an existing authorisationdealing with resolutions made by IATA’s airlinemembers about the relationship between airlinesand travel agents in Australia and the issue of

1 The nine RACS specialties are: general surgery; cardiothoracic surgery;neurosurgery; orthopaedic surgery; otolaryngology-head and necksurgery; paediatric surgery; plastic and reconstructive surgery; urology;and vascular surgery.


a substitute authorisation. The Commission iscurrently undertaking public consultation on thisapplication.

Australian Competition Tribunaldecision — Australasian PerformingRights Association LimitedIn February 1998 APRA, a voluntary copyrightcollecting society, applied to the AustralianCompetition Tribunal for a review of aCommission determination denyingauthorisation and revoking notificationprotection of APRA’s licensing arrangements.

APRA, the Commission and the Federationof Australian Commercial Television Stationsparticipated in the hearing in November 1998.On 16 June 1999 the tribunal adjourned theproceedings for nine months to enable APRAto design rules both for a non-exclusive licenceback system, and for a simplified alternativedispute resolution procedure. APRA’s proposedamendments were not opposed by theCommission and FACTS, and on 20 July 2000the tribunal granted authorisation and reinstatedthe notification.

Major authorisations andnotifications finalised during2000–01

The Textile, Clothing and Footwear Union of

Australia and The Council of Textile and Fashion

Industries Limited

On 15 November 1999 the Council of Textileand Fashion Industries and the Textile, Clothingand Footwear Union of Australia applied forauthorisation of arrangements that comprise theHomeworkers Code of Practice. The code is avoluntary self-regulatory scheme which accreditsparties along the garment manufacturing andretail chain. The code also provides forcommercial sanctions against people whobreach the provisions.

The code aims to redress difficultiesencountered by outworkers or homeworkers,including occupational health and safetyissues, reducing the risk of exploitation of adisadvantaged group and providing informationto homeworkers so they can better understandtheir entitlements.

The code supplements the outworker provisionsof the Clothing Trades Award 1982, which isan award of the Australian Industrial RelationsCommission in accordance with the WorkplaceRelations Act 1996.


The Commission concluded the arrangementswould not substantially affect participatingparties’ ability to compete. On 31 July 2000the Commission issued a final determinationauthorising the code based on a net balanceof public benefits.

Consumer Electronic Clearing System

In August 2000 the Commission grantedauthorisations to the Australian PaymentsClearing Association (APCA) in respect of theregulations and procedures for the ConsumerElectronic Clearing System (CECS). The CECSarrangements aim to coordinate minimumstandards and procedures for ATM and EFTPOSpayment instructions between CECS members,and all aspects of the clearing cycle. In grantingauthorisation the Commission concluded thatthe minimum standards and procedures wouldresult in net benefit to the public by enhancingthe security and integrity of the ATM andEFTPOS network.

However, the Commission granted theauthorisation on the condition that the CECSregulations be amended to ensure that:

• CECS members cannot require non-membersto meet interchange standards and proceduresother than those set out in the CECS manual;and

• no CECS member is able to refuse to engagein ATM or EFTPOS interchanges with eithera member or a non-member acquirer ora merchant principal that has APCAcertification, on technical, operationalor security grounds.

Investment and Financial Services Association

On 30 August 1999 the Investment andFinancial Services Association (IFSA) appliedfor authorisation for its draft policy on genetictesting. IFSA is an industry association thatrepresents the retail and wholesale fundsmanagement and life insurance industries.

The Commission became involved in this issuebecause the proposed agreement between lifeinsurance companies involved a likely reductionin competition between them in premiums.

Following a draft decision proposing to denyauthorisation, and a pre-decision conference,

IFSA amended its application in October 2000to seek authorisation for only two clauses of itsdraft policy.

These proposed an agreement by IFSA membersthat they will not require applicants for lifeinsurance to undergo genetic testing, and willnot induce applicants to undergo such testingby offering discounts off standard premium ratesbased on favourable test results.

The Commission considered that there wouldbe public benefit in avoiding insurer-initiatedcoercion to undertake genetic testing, andthat government policy making would be moredifficult if compulsory genetic testing wasintroduced now. The Government hadannounced in August 2000 that the AustralianLaw Reform Commission and the National Healthand Medical Research Council were to inquirejointly into human genetic information privacyand discrimination issues. Submissions on theapplication from interested parties indicatedthat there was considerable community concernabout the adequacy of existing legislation todeal effectively with the issues of access to, anduse of, individuals’ genetic tests results includingby life insurers.

The Commission concluded that there wasbenefit in authorising the proposed agreementfor two years so the issues surroundingtesting can be debated and governmentpolicy developed. In view of anticipated rapidadvances in gene technology, and likely furtherdevelopment of self-regulatory and legislativesafeguards, the Commission grantedauthorisation in respect of the two particularclauses of the draft policy until 13 December2002.

Marven Poultry Pty Ltd

On 29 June 2001 the Commission grantedauthorisation to allow collective negotiationsbetween Victorian chicken growers and theirindividual processors in light of proposedindustry deregulation. The authorisationallows growers contracted to each processorto negotiate collectively and give effect tostandard growing contracts with their processorin accordance with minimum standards and


conditions outlined in a proposed code ofconduct.

At the time of considering the application, thechicken meat industry in Victoria was regulatedby the Broiler Chicken Industry Act 1978 andBroiler Chicken Industry Regulations 1992.However, a national competition policy reviewfound this legislation unnecessarily restrictscompetition and recommended its repeal.The application for authorisation was lodgedin anticipation of industry deregulation andrepresented a compromise between the currentarrangements and full industry deregulation.

The Commission considered that while thecollective negotiating arrangements may reducethe scope for competition over rates of paymentand other terms and conditions betweengrowers, the nature of the arrangements andindustry structure significantly limit the extent ofany anti-competitive detriment. The Commissionalso found that the collective negotiationarrangements would produce public benefits,in particular as transaction cost savings, relativeto a fully deregulated environment, and infacilitating the transition to deregulation.

The Commission granted authorisation for fiveyears, subject to certain conditions, includingthat the proposed code of conduct be amendedto clarify the rights of growers to formnegotiation groups.

CSR Ltd collective cane supply and expansion

agreements

On 2 May 2000 CSR Ltd applied forauthorisation to collectively negotiate canesupply and expansion agreements at its Invictaand Pioneer Sugar Mills in North Queensland.

The Commission was satisfied that theagreements would deliver public benefits byincreasing mill throughput and farm output,associated new investment and efficiency gainsfrom the improved use of infrastructure. Relatedpublic benefits included export growth andincreased international competitiveness, andassociated economic gains to the Burdekincane-growing region.

In assessing the application the Commissionhad to weigh up the likely detriment from theagreements against the situation without the

agreements but with considerable restrictiveState legislation in place. In that context theCommission considered the anti-competitivedetriment arising from the agreements to beminimal and was outweighed by the benefits tothe public. The Commission therefore grantedauthorisation.

Aerial Taxi Cabs Co-Operative Society Limited

Aerial Taxi Cabs Co-Operative Society Limitedlodged a notification on 20 April 2001 inrelation to proposed third line forcing conduct.That conduct involved the supply of taxiservices, through the radio-telephone bookingdispatch system, on the condition that theoperator acquire a specific type of Sigtecsecurity camera. Aerial submitted that it testedthree types of security camera and that therestriction to the Sigtec camera was the resultof practicality and compatibility issues.

At the time of consideration, Yellow Cabs(Canberra) Pty Ltd was about to enter the ACTtaxi services market in competition to Aerial.However, for Yellow Cabs to successfully enterthe market it would have to attract operatorsfrom Aerial as all taxi licenses for the region werecurrently held by Aerial affiliated operators andthe ACT government did not intend to issue anynew taxi cab licenses. Yellow Cabs advised thatit was introducing a dispatch system that wasincompatible with the Sigtec camera requiredby Aerial. Therefore, operators transferringfrom Aerial to Yellow Cabs would be requiredto acquire a new security camera, in additionto any Sigtec camera they would have beenrequired by Aerial to purchase.

The Commission considered that the installationof security cameras in taxi cabs would be in thepublic interest. However, the Commission wasconcerned, given the current nature of the ACTtaxi services market, that the requirement thatall operators acquire and install the Sigteccamera as opposed to a substitute camera thatwas compatible with the Yellow Cabs dispatchsystem may have public detriment implications.The notified conduct would have the likely effectof requiring those operators who had recentlyinstalled the Sigtec camera system, to incur


additional expense acquiring an alternativecamera compatible with the Yellow Cabs system.These additional costs over a short period,especially for fleet operators, might be animpediment to operators transferring from Aerialto Yellow Cabs and hinder the ability of YellowCabs to establish itself as a viable competitor inthe market.

After receiving advice that either of the twoalternative cameras tested by Aerial (which arecompatible with the Yellow Cabs system), couldbe accommodated with the Aerial system withminimum cost, the Commission suggested anamendment to the notification. Operatorsshould be able to install any of the camerastrialed by Aerial. In response, on 7 June 2001Aerial withdrew its notification.






• Consulted with Federal and State Governmentson competition issues arising from regulatoryreforms.


• Regulated gas market as required by theNational Third Party Access Code for NationalGas Pipeline Systems.

• Regulated electricity market as required bythe National Electricity Market Code.


• Appropriate enforcement action taken andgoals achieved.


• ACCC policy and positions formulated —discussion documents and guidelines oncompetition initiatives and regulatorymechanisms be prepared, disseminated anddiscussions take place with Government,industry and consumers.

Regulatory affairsC h a p t e r

6

CONTENTS

Electricity p.89

Gas p.98

Telecommunications p.104

Air transport p.115

Rail p.120

Utility Regulators’ Forum p.121

Prices monitoring p.122

Parallel importing p.123

Petroleum products p.123

Milk monitoring p.125

Waterfront p.126

International forums p.128


OverviewThe Commission seeks to promote competitiveconduct in network industries and, ifcompetition is not possible, to restrainmonopoly pricing and other abuses of marketpower. The principal barrier to competition andthe source of market power in these industriesis their reliance on facilities with naturalmonopoly characteristics. These are theessential infrastructure facilities such astelecommunications networks, transmission anddistribution wires, and pipelines and airports.

The Commission is responsible for the economicregulation of services provided by some of thesefacilities. Under Part IIIA of the Trade PracticesAct, and associated codes, the Commissionregulates third party access to some essentialfacilities. This involves procedures so that accessseekers, such as telecommunications carriers,electricity generators and retailers and airportusers, can gain access to the infrastructurenecessary to compete in upstream and/ordownstream markets.

The Commission also administers Part XIBwhich deals with anti-competitive conductin the telecommunications industry and,Part XIC, which sets out rules and proceduresfor guaranteeing access to network servicesfor telecommunication carriers and serviceproviders. The Commission also administersthe Prices Surveillance Act.

The Commission’s regulatory functions include:

• assessing code changes, derogations andaccess arrangements in electricity;

• assessing revenue caps in respect of electricitytransmission businesses;

• declaring services in telecommunications;

• determining declared services in airports;

• assessing access arrangements for natural gastransmission pipelines;

• assessing undertakings under Parts IIIA and XIC;

• determining revenue and price arrangements;

• assessing compliance with price caps;

• arbitrations;

• assessing quality of service monitoring; and

• prices surveillance and monitoring activities.

The Commission also participates in variousindustry forums. These include self-regulatorybodies responsible for developing technicalcodes, the code changes panel and a numberof other consultative groups.

The Commission continues to explore thedevelopment of efficient regulation. Duringthe past year it hosted a major conference onregulation and investment attended by leadingparticipants from Australia and overseas. It alsoran public forums on regulatory issues such asnetwork pricing. These workshops gave peoplean opportunity to consult with the Commissionon its draft determination for the authorisationof the network pricing and market networkservice provider code changes.

The Commission undertakes extensive publicconsultation, and has released discussion papers,draft decisions and run public conferencesbefore finalising regulatory decisions.

During the year the Commission madesubmissions to several Productivity Commission(PC) inquiries into the regulatory arrangementsunder Part IIIA, Parts XIB and C of the TradePractices Act, the Airports Act and associatedinstruments. Submissions were also provided tothe PC inquiry into the Prices Surveillance Act.

The Commission has worked with other Stateand Territory regulators to encourage consistentand transparent regulation across jurisdictions.The Utility Regulators Forum, which is acommittee of all Commonwealth, State andTerritory regulatory agencies, promotesinformation sharing and consistent approachesto regulation.


Electricity


• Regulated electricity market as required by theNational Electricity Market Code.

During 2000–01 several code changes wereassessed by the Commission. These includedchanges to the VoLL (value of lost load),transmission and distribution network pricing,full retail competition (FRC), and the entry ofTasmania into the NEM (national electricitymarket).

The Commission’s regulatory role increasedwith the almost completed transfer oftransmission regulation from jurisdictionalregulators to the Commission. On 1 January2001 the Commission commenced regulation ofthe South Australian and Victorian transmissionnetworks, and from 1 January 2002 will beginregulation of the Queensland transmissionnetwork operated by Powerlink.

The Commission will also review theregulatory test used to determine whetheran interconnector should be regulated in thesecond half of 2001, after concerns wereexpressed that the test placed too high athreshold on regulated transmission investmentin interconnectors between the regions.

Authorisations

Amendments to the NationalElectricity Code

The Commission received several applications forauthorisation from the National Electricity CodeAdministrator (NECA) proposing amendmentsto the National Electricity Code. These arediscussed in the following section.

Transmission and distribution network pricing

On 12 December 2000 the Commission issuedits draft determination of changes to thenetwork pricing arrangements in the code.The decision followed a NECA review of thecode’s network pricing arrangements.

These are a key component of the NEM designand affect the code’s ability to deliver publicbenefits through efficient utilisation of, andinvestment in, network assets, as well as optimal

electricity production and consumptiondecisions. In assessing the changes put forwardby NECA, the Commission considered someissues would detract from the public benefitsthe changes would provide. Two of these werethe beneficiary pays system for funding newinvestments and the transmission usage charge,which was based on three methods and was tobe payable by customers only. The Commission’sdraft determination required the beneficiarypays system be deleted and transmissionusage pricing be applied to all network users,depending on whether they add to or relievecongestion.

Other changes to the code include improvedinformation disclosure by network businesses,transmission network service providers to recoverthe cost of discounts from other customers andthe introduction of rules to allow market networkservice providers to participate in the NEM.

The Commission held a pre-determinationconference on 15 March 2001.

VoLL code changes

On 20 December 2000 the Commissionreleased its final determination authorising codechanges to increase the price cap for spot pricesin the market from $5000 to $10 000. Thedetermination also approved a negative pricefloor for spot prices, changes to the cumulativeprice threshold and the introduction of newcapacity mechanisms.

VoLL is a cap on regional reference prices inthe NEM. In situations where determination ofdispatch prices would otherwise result in a pricegreater than VoLL at any regional referencenode, it must be reduced to VoLL. The level ofVoLL therefore represents the maximum spotprice for wholesale electricity in the NEM andis currently set at $5000 per megawatt hour(MWh). The price of electricity most often sitsbetween $20/MWh and $60/MWh.

NECA proposed to increase VoLL in two steps— to $10 000/MWh in September 2001 andto $20 000/MWh in April 2002. NECA alsoproposed to impose a cap on the market price ifthe cumulative effect of high spot prices exceedsa threshold level of $300 000.


The Commission acknowledged that theproposed increase in VoLL would provide publicbenefit, as it would encourage investmentin peaking capacity in circumstances whendemand peaks occur for only a few hours a year(as is currently the case in Victoria). However,the Commission considered NECA did notdemonstrate that the increase in VoLL providespublic benefits of reliability of supply throughimproved demand-side response. As such, itdid not believe that an increase in VoLL to$20 000/MWh delivers sufficient public benefit.

In the final determination the Commissiontherefore limited the increase in VoLL to$10 000/MWh but proposed delaying theincrease until April 2002 to allow marketparticipants sufficient lead-time to accommodatethe increase in risk.

The Commission further reduced the cumulativeprice threshold to $150 000 rather than$300 000 proposed by NECA.

Full retail competition

On 11 August 2000 the Commission receivedapplications for authorisation of amendmentsto the code from NECA. These changes wouldbring about the introduction of full retailcompetition (FRC), and amend the proceduresfor registering code participants.

On 20 September 2000 the Commissiongranted conditional interim authorisationto the proposed arrangements. In responseto concerns regarding the conditions ofauthorisation, the Commission revoked andregranted the interim authorisation on


27 October 2000. The Commission released itsdraft determination on 11 April 2001.

The Commission held a pre-determinationconference in May before releasing its finaldetermination in August 2001.

Victorian FRC derogations

On 19 March 2001 NECA applied forauthorisation of amendments to the derogationscontained in chapter 9 of the code on behalf ofthe Victorian Government. The proposedchanges to the derogations will:

• introduce transitional arrangements formetering services in the wholesale electricitymarket; and

• provide the local network service providerswith a monopoly for providing meteringservices.

The Commission released its draft determinationon 4 July 2001, and granted conditional interimauthorisation. The conditions related to the enddate of the derogation.

On 20 July 2001 a pre-determinationconference was held. The Commission releasedits final determination on 8 August.

Ancillary services

On 23 August 2000 NECA applied forauthorisation to introduce new ancillary servicesarrangements in the NEM. These arrangementsintroduce a market-based system to procureancillary services, and where possible, introducea ‘causer pays’ regime for cost allocation amongmarket participants.

The Commission released its draft determinationon 2 April 2001, held a pre-determinationconference on 3 May 2001 in Canberra andreleased the final determination on 11 July 2001.

Extension of schedule 9G

On behalf of the participating jurisdictions,NECA lodged authorisation applications forchanges to the code on 21 November 2000to extend the operation of schedule 9G.

Schedule 9G sets out derogated arrangementsfor ancillary services, from 31 December until31 August 2001. The application also sought tomodify clause 9.35.7, which currently varies theapplication of schedule 9G in Queensland.

The Commission granted interim authorisationto the proposed code changes on 29 November2000.

Tasmanian NEM entry

The Tasmanian Government has developed anenergy reform framework comprising two majorinfrastructure projects and market reforms.An undersea electricity cable (Basslink) anda natural gas pipeline will link Tasmania to themainland. Tasmania is expected to join theNEM in 2003, accompanied by the subsequentphased introduction of retail contestability forall electricity consumers.

As part of these arrangements, Hydro Tasmaniahas entered into an agreement with Basslink PtyLtd relating to the operation of the Basslinkinterconnector. After discussions with theCommission, the two parties decided not toapply for authorisation of that agreement.

On 13 September 2000 NECA applied to theCommission to authorise amendments to thecode facilitating the Inter-Regional PlanningCommittee’s consideration of the technicalnetwork issues associated with the Basslinkinterconnector. The Commission released a draftdetermination on 6 December 2000 and, in theabsence of a request for a pre-determinationconference, released its final determination on24 January 2001.

On 22 November 2000 the Commissionreceived an application to authorise a vestingcontract between Hydro Tasmania and AuroraEnergy for the non-contestable load andderogations to the code. On 18 July 2001the Commission released draft determinationsproposing to authorise the applications, subjectto several conditions.

Other code changes

Network and distributive resources

On 20 December 2000 the Commissionreceived applications from NECA to authorisethe network and distributed resources codechanges concerning network planning anddevelopment.

The code changes propose that TransmissionNetwork Service Providers (TNSPs) will beallocated more responsibility to justify and bringforward new network investments. Alongside


this, NECA argues that the proposals introducegreater transparency and information disclosureabout the TNSP’s investment program, andencourage viable non-network investments,such as local generation, as an alternative toa regulated network solution.

The Commission will release its draftdetermination in August 2001.

Inter-regional TUOS, PASA, end-user advocacy andpricing under extreme conditions

On 8 December 2000 the Commission receivedapplications from NECA to authorise a packageof code changes that include:

• extending the current moratorium on inter-regional transfer of transmission use of system(TUOS);

• improvements to PASA (projected assessmentof system adequacy) regarding the availabilityof network and generator availabilityinformation;

• clarifying pricing under extreme conditions;and

• changes to demand-side participation andthe funding of end-user advocacy.

The Commission released a draft determinationon 6 June 2001 and a pre-determinationconference was held on 19 July 2001.

Snowy Hydro Trading Pty Ltd (Snowy) derogation

On 13 February 2001 NECA applied to theCommission to authorise changes to the code,to extend an existing chapter 8 derogation forSnowy to bid its generation capacity as fivenotional generating units, rather than having toplace separate bids for each of its 31 individualgenerating units, or bids for a number ofaggregated units.

The extension is for a six-month period from31 March 2001 to 30 September 2001 to allowthe Snowy to upgrade its communication andcontrol systems so that the derogation will nolonger be necessary.

The Commission granted interim authorisationon 29 March 2001 and released its draftdetermination. The final determinationauthorising the extension of the derogationwas released on 9 May 2001 and expires on30 September 2001.

Averaging loss factors in distribution networks

On 20 March 2001 NECA applied to authorisechanges to the code to allow distributionnetwork service providers to assign smallercontestable customers to non-physicaltransmission connection points using anaveraged transmission loss factor. Theproposal will replace the existing obligationon distribution networks to assign all suchcustomers to physical connection points.

On 6 June 2001 the Commission released itsdraft determination outlining its analysis andviews. A pre-determination conference was heldon 19 July 2001.

Queensland technical derogations

On 24 October 2000 NECA applied toauthorise amendments to the code toextend the end dates of eight derogations to31 December 2002. The derogations originallyterminated on the date of the commissioningof the Queensland–New South Walesinterconnector (QNI). The Commission wasasked to consider these applications as soonas possible, ready for Queensland’s increasedenergy demands over the 2000–01 summerperiod.

The Commission granted conditional interimauthorisation to the applications on 6 December2000.

Rebidding, VoLL scaling and settlements statements

On 15 March 2000 NECA applied to authoriseamendments to the code to introduce modifiedrules for rebidding in the centralised spot marketoperated by NEMMCO. The amendmentsincluded modified rules for informationdisclosure regarding the rebids.

On 27 March 2000 that application wasamended to include changes to the code relatingtoVoLL scaling and revision of settlementsstatements.

The Commission released a draft determinationon 3 November 2000 proposing a number ofconditions of authorisation and released its finaldetermination on 6 December 2000.


Code amendments to accommodate the GST

On 6 December 2000 the Commission releasedits determination in relation to applications forauthorisation of changes to the code to reflectthe introduction of the GST. The changesproposed to allow prices in the electricitywholesale spot market to be quoted exclusiveof GST. The Commission commented that GST-exclusive electricity spot prices are consistentwith the Commission’s GST guidelines, providedNEMMCO made it clear to market participantsand others that prices are quoted on a GST-exclusive basis.

Other electricity authorisations

South Australian vesting contracts

On 22 December 1999 the Commission issued adetermination to authorise the South Australianvesting contracts. The determination imposedtwo conditions: first, to require the averageprice outcome, for electricity supplied underthe contracts, to be $40 MWh or below; andsecond, to require that the franchise retailer hasan option to terminate its swap and price capcontracts. The contracts were authorised untilDecember 2002.

On 14 April 2000 the Commission received anapplication from the South Australian franchiseretailer, AGL(SA), to revoke and re-authorisethe South Australian vesting contract. AGL(SA)proposed that three new conditions be addedto the authorisation, including: a look-backmechanism to rebate AGL(SA) to the extent itsaverage electricity acquisition price paid underthe vesting contracts exceeds $40 MWh; rebatesto customers where the average acquisition pricefalls below $40 MWh; and other changes to thecontract between itself and Optima Energy.

The Commission conducted public consultationsbefore releasing a draft determination inNovember 2000 rejecting the proposedchanges. The Commission released its finaldetermination on 20 December 2000.

Year in reviewMany code changes were assessed by theCommission during 2000–01, which havebeen discussed from page 89. The revenuerequirement for the Snowy Mountainstransmission network was finalised and theprocess for determining the revenue requirementfor Powerlink commenced. Preparatorydiscussions were held with ElectraNet andPowerNet on their forthcoming revenuedeterminations.

The Commission was also involved in forumsand working groups about the operation of thenational electricity market. These included theMarket System Operations Review Committee(MSORC), the review of the scope for theintegration for the energy market and networkservices (RIEMNS) working group, the networkissues working group, the jurisdictional liaisongroup and NECA’s steering committee for itsreview of the code.

Concerns were raised during 2000–01 aboutthe perceived high level of price volatility inthe spot market, increases in the average spotmarket price and price increases in wholesaleand retail electricity contracts. The followinggraph indicates average spot market prices sincethe market began in December 1998.

AC

CC

20

00

–2

001

Annual R

epo

rt9

4 Figure 6.1. Spot price — 28-day volume weighted average since market start

Source: National Electricity Code Administrator May 2001

$/MWh

200

160

120

80

40

0

Dec

Feb

Ap

r

Jun

Au

g

Oct

Dec

Feb

Ap

r

Jun

Au

g

Oct

Dec

Feb

QUEENSLAND NEW SOUTH WALES SNOWY

SOUTH AUSTRALIAVICTORIA


Price volatility was most noticeable in thesummer periods. In the 2000–01 summer,volume weighted average prices increased in anumber of states. The following table showschanges in prices over the last three summers.

Energy issues were raised at the 8 June meetingof the Council of Australian Governments(CoAG) and at a meeting of the NEM MinisterialForum on 26 June 2001 particularly relatingto South Australia. An outcome of the CoAGmeeting was a three-person review to undertakea strategic study of the electricity market,including identifying impediments stoppingenergy market reform benefits being fullyrealised. The review is expected to report inSeptember 2002. The NEM Ministerial Forum is also undertaking work on priority NEMissues including impediments to transmissioninterconnection, regulatory overlap and marketbehaviour.

NECA has begun a review of the price cap in themarket (the value of lost load) and the biddingand rebidding rules in the code. NECA isconsidering imposing limitations on the rateof change in spot prices caused by rebidding.

Regulatory work

With the transfer of transmission regulationfrom jurisdictional regulators to the Commissionnow nearing completion an increasing emphasishas been given to the regulatory role of theCommission under the code’s access provisions.

QLD NSW VIC SA

summer 2000–01 52.80 49.17 69.66 112.05

summer 2000–01 (adjusted) 43.97 50.42 76.73

summer 1999–2000 63.04 32.83 26.62 85.24

summer 1998–99 71.36 22.09 26.90 59.01

% change from 1999–2000 16% 34% 89% 10%

% change from 1998–99 26% 99% 87% 30%

Table 6.1. Summer price comparison volume weighted average

Source: National Electricity Code Administrator May 2001 Summer 2000–01 adjusted price removes the market intervention events

of 7 and 8 February 2001.

➔➔

➔

➔

➔

➔

➔

➔

From 2003 all transmission networks in theNEM will be under Commission revenueregulation with several revenue determinationsdue on 1 January 2003. Apart from preparing toundertake this work, the Commission recognisestransmission networks need a degree ofregulatory certainty. Consequently, it will finaliseits draft regulatory principles and associatedring fencing and information disclosure rules bythe first half of 2002. It will also resolve anyremaining uncertainty concerning the operationof the regulatory test for regulated investmentthrough an upcoming review.

Regulation of Queensland transmission networks

Under the code the Commission beginsregulation of the Queensland transmissionnetwork operated by Powerlink from 1 January2002.

On 14 February 2001 the Commission receivedPowerlink’s application outlining its proposedrevenue cap. To help consider the application,the Commission engaged PB Associates toreview the assumptions, methodology andfindings of a 1999 valuation of Powerlink’sasset base and analysed and commented onPowerlink’s proposed capital expenditure


(capex), operating expenditure (opex) andservice standards.

The Commission’s draft decision released inJuly 2001, draws on Powerlink’s application, PBAssociates’ reports, submissions from interestedparties and other information presented duringits deliberations.

The draft decision provides a revenue allowancefor the Powerlink of $318.50 million from1 January 2002, which increases to $485.31million by June 2007. The revenue path hasbeen smoothed to provide a degree of pricepredictability for customers. This is based ona post-tax nominal return on equity of 11.70per cent and an opening asset base of $2279million. The increase in revenues is largelyattributable to Powerlink’s extensive proposedcapex program.

The Commission is proposing to finalise itsrevenue cap determination in September 2001.

Regulation of Snowy Mountains Hydro-Electric

Authority (SMHEA)

The Commission finalised its revenue capdecision for the non-contestable elementsof the SMHEA’s transmission network on7 February 2001. The Commission’s decision,in accordance with code principles, wasconducted at the request of Snowy MountainCouncil members.

Taking into consideration a consultant’sreview of the SMHEA’s transmission assets,the Commission set the opening asset value at$62.45 million. The Commission also acceptedthe prudency of the SMHEA’s proposed capexprogram and allowed capex of $7.06 million overthe regulatory period.

Based on market conditions, the Commissionconsidered that the appropriate rate of return toapply to SMHEA was a post-tax nominal rate ofreturn on equity of 11.25 per cent. This equatedto a post-tax nominal WACC of 6.81 per cent.

Based on the building block approach, theCommission derived a smoothed revenueallowance for the SMHEA, using a positive Xfactor of 3.54, which decreases slightly from$10.79 million in 1999–2000 to $10.66 millionin 2003–04.

Regulation of South Australian transmission

network

On 1 January 2001 the Commission commencedregulation of the South Australian transmissionnetwork, ElectraNet SA (ElectraNet).

The revenue cap and transmission networkprices for ElectraNet are outlined in the SouthAustralian Electricity Pricing Order (EPO).The EPO was established before the privatisationof the electricity assets and therefore, until1 January 2003, the Commission’s role is limitedto administering transmission related functionsunder the EPO. It will not become responsiblefor setting ElectraNet’s revenue cap until1 January 2003.

On 12 January 2001 and 28 June 2001,ElectraNet submitted applications to pass-through discounts relating to its regulatedtransmission charges for 1 January 2001 to30 June 2001 ($18.1 million) and 1 July2001 to 31 December 2001 ($4.9 million).The Commission approved both applications.

Additionally, on 7 May 2001 ElectraNetsubmitted an application to the Commissionrelating to its transmission charge applying from1 July 2001 to 30 June 2002. The Commissionapproved the new charges as outlined in chapter6.5 of the EPO.

Regulation of Victorian transmission network

On 1 January 2001 the Commission commencedregulation of the Victorian transmission network,SPI PowerNet and the Victorian Energy NetworkCorporation (VenCorp).

The revenue cap and transmission networkprices for PowerNet are outlined in the VictorianTariff Order (VTO). Until 1 January 2003, theCommission’s role is limited to administeringtransmission-related functions under the VTO.It will not become responsible for settingPowerNet’s and VenCorp’s revenue requirementsuntil 1 January 2003.

In accordance with one of the Commission’sresponsibilities, PowerNet submitted anapplication for a maximum allowed revenue of$268.88 million. This represents a decreaseof 5 per cent from the previous year. VenCorpsubmitted an application for a maximum allowedrevenue of $222.72 million, representing a


decrease of around 7 per cent on the previousyear. The Commission approved bothapplications.

The Commission has also commenceddiscussions with SPI PowerNet concerning therevenue reset for the period commencing1 January 2003.

Draft regulatory principles

The Commission released its draft regulatoryprinciples in May 1999. Since then there havebeen various developments in the approachto the regulation of network industries.The Commission proposes to finalise theregulatory principles by the first half of 2002.

Draft information requirements guidelines

On 27 May 1999, in accordance with the code,the Commission released its Draft Statement ofPrinciples for the Regulation of TransmissionNetworks (Draft Regulatory Principles). Theprinciples included the Commission’s initialviews on information disclosure requirements.

Following its release the Commission receivedsubmissions from interested parties outliningtheir concerns. In addition, the Commission hasfinalised revenue caps for three transmissionnetworks: Transgrid, EnergyAustralia and SMHEA.As a result, the financial model and informationneeds have been refined.

The Commission engaged KPMG Consultingto review the proposed revenue informationrequirements and annual compliance reportingprinciples in the Draft Regulatory Principles anddevelop a revised set of information guidelines.

On 9 May 2001 the Commission released itsdraft information requirements guidelines andinvited written submissions in response to itsdocument.

Proposals for national guidelines on servicestandards and network performance

Proposed code changes provide for theCommission to establish service standardsand performance incentives for transmissionnetworks. The Commission proposes to begindevelopment work within the next 12 monthswith transmission network service providers ondeveloping service standards and incentivemechanisms.

Ring-fencing guidelines

Draft ring-fencing guidelines for transmissionnetwork service providers were included in thedraft regulatory principles in May 1999. Revisionof the guidelines has been undertaken followingwork by the Office of the Regulator-GeneralVictoria and the Independent Pricing andRegulatory Tribunal in NSW. The Commissionproposes to release the revised guidelines inAugust 2001.

Review of regulatory test for interconnectors

The code provides that the test for determiningwhether an interconnector is to be regulated isbased on a test determined by the Commission.The current regulatory test was developed in1999 and there have been no determinationscompleted to date by the Inter-regional PlanningCommittee (IRPC) using the criteria developedby the Commission. However, some concernshave been expressed that the Commission’sregulatory test places too high a threshold onregulated transmission investment ininterconnectors between the regions and thismay be having an adverse impact on thedevelopment of an integrated transmissionnetwork across the NEM.

Consequently the Commission will review theregulatory test in the second half of 2001.


Gas


• Regulated gas transmission market as requiredby the National Third Party Access Code forNational Gas Pipeline Systems.

Over the past year the Commission assessed 10access arrangements under the National ThirdParty Access Code for Natural Gas PipelineSystems (national gas code) — of these, a finalapproval of the access arrangement for theMarsden–Dubbo pipeline was released on19 September 2000. The Commission releaseddraft decisions for the Moomba–Adelaide,Moomba–Sydney and the AmadeusBasin–Darwin proposed access arrangementsand is considering the proposed accessarrangement for the Riverlands–Mildura pipeline.Access arrangement applications were alsoreceived for the Ballera–Mt Isa,Wallumbilla–Brisbane, Ballera–Wallumbillaand Wallumbilla–Gladstone via Rockhamptonpipelines in Queensland. Draft decisions werereleased for the latter two Queensland pipelines.

The Commission also assessed an applicationfrom GPU to revise an existing accessarrangement, the Principal Transmission

System in Victoria, to incorporate the SouthwestPipeline. In addition the Commonwealthcompleted an access undertaking assessmentsubmitted under Part IIIA by Duke EnergyInternational. The Commission is continuingto consider proposed rule changes to theVictorian Market System Operation Rules.

The Commission also participated in: preliminarydiscussions relating to proposed new pipelines,in particular discussing the probable regulatoryregimes; and various consultative groupsincluding the Gas Policy Forum and NaturalGas Pipelines Advisory Committee (NGPAC).

Access arrangements

Central West Pipeline: APTPipelines (NSW)

The Commission released its final decision onthe Central West Pipeline proposed accessarrangement on 30 June 2000, not approvingthe arrangement. It set out 19 amendments thatwould have to be made before it would approvethe arrangement.

In response APT Pipelines (NSW) submitted arevision on 31 August 2000. The Commissionis satisfied that it incorporates the amendmentsand approved the access arrangement, issuing afinal approval on 19 October 2000.


The access arrangement came into effect on6 November 2000, with an expected initialaccess arrangement period of 10 years.

Moomba to Adelaide PipelineSystem: Epic Energy

On 16 August 2000 the Commission issued itsdraft decision on Epic Energy South Australia PtyLimited’s proposed access arrangement for theMoomba to Adelaide Pipeline System.

The Commission was concerned that the accessarrangement would provide a revenue streamthat was higher than the efficient costs ofproviding services and therefore it proposedamendments that would reduce the proposedtariff by up to 11 per cent.

The Commission was also concerned thatthe terms and conditions of service were toorestrictive and did not adequately balance theinterests of Epic and users of the pipeline andproposed amendments to redress this imbalance.

The Commission held a public consultationforum attended by more than 40 participantsin Adelaide on 2 November 2000 to discuss the major issues arising from the draft decision.

Following the forum, Epic indicated thatit wished to amend its proposed accessarrangement and did so on 18 May 2001.The Commission released an issues paper on25 May 2001 to seek comments on the majorrevisions and is now preparing its final decision.

Moomba to Sydney PipelineSystem: EAPL

The Commission released its draft decision onEast Australian Pipeline Ltd’s (EAPL) proposedaccess arrangement for the Moomba to SydneyPipeline System (MSP) on 19 December 2000.The Commission did not propose to approvethe access arrangement, but outlined theamendments that would have to be madefor it to do so.

The Commission proposed an asset valuation of$502 million compared with EAPL’s proposedvaluation of $666 million, and a return on equityof 13.0 per cent compared with the proposedrange of 13.1 to 14.6 per cent. Under theincentive mechanisms contained in the accessarrangement, EAPL can exceed this rate of return

if it outperforms its forecasts of market demandor reduces costs below the projected levels.

As a result of the amendments, tariffs on theMSP would be around 34 per cent less thanthose proposed by EAPL.

On 5 June 2001 EAPL applied to the NationalCompetition Council (NCC) for revocation ofcoverage of certain sections of the MSP (theMoomba to Sydney mainline and the Canberralateral). This follows the Australian CompetitionTribunal’s decision of 4 May 2001 that theEastern Gas Pipeline (owned by Duke EnergyInternational) is not to be a covered pipelineunder the code. On 14 June 2001 EAPLrequested that the Commission postponereleasing its final decision on the MSP pendingresolution of its application for revocationlodged with the NCC. The Commission agreedsubject to a review in six months time.

Amadeus Basin to DarwinPipeline: NT Gas

On 2 May 2001 the Commission issued a draftdecision on the proposed access arrangementsubmitted by NT Gas Pty Ltd for the AmadeusBasin to Darwin Pipeline (ABDP). The AustralianPipeline Trust holds a 96 per cent share in NTGas, which is the operator of the ABDP.

NT Gas proposed a reference tariff of $3.46/GJ,which the Commission considered to beunreasonably high. The Commission calculateda substantially lower capital base, largely dueto a difference in the treatment of depreciationsince 1986. In its draft decision the Commissionproposed a reference tariff of $1.90/GJ.

The Commission established a revenue streamwith a post-tax return on equity of 12 per centover the next five years. NT Gas could achievea return on equity of over 12 per cent via lowerthan forecast operations and maintenance costsand through the sale of non-reference services.

The Commission granted the NT Governmentand the Power and Water Authority a threemonth extension (to 7 September 2001) tolodge a joint submission on the draft decision.

The Commission will prepare its final decisionfollowing receipt of all submissions.


Riverland and Mildura Pipelines:Envestra

Envestra Limited submitted proposed accessarrangements for the Riverland PipelineSystem and the Mildura Pipeline System on22 November 1999.

A 1997 tender for the Mildura pipelineestablished a real rate of return and a price pathto deliver an appropriate internal rate of returnover 30 years. The Commission accepted theterms determined by the tender process in April1999 and so cannot review them when assessingthe access arrangement. The access arrangementfor the Mildura Pipeline covers items notaddressed by the tender process.

The Commission assessed the proposed accessarrangements during 2001 but requires furtherinformation from Envestra to complete the draftdecision.

Envestra requested that the Commissionpostpone the release of a draft decisionpending the resolution of a coverage revocationapplication currently before the NCC.

Queensland Gas Pipelines

As reported last year, the NCC asked theCommission to advise whether the Queenslandgas pipeline access regime as it applies to fourderogated pipelines is consistent with the code.Specifically, the NCC requested that theCommission assess the relevant tenderprocesses against those established in the code.If they were inconsistent, the Commission wasthen asked to determine whether the referencetariffs in the respective access principles wereconsistent with the pricing parameters set outin section 8 of the code.

The Commission found that the tenderingprocess conducted by the QueenslandGovernment to determine access principles forthe Wallumbilla to Gladstone via Rockhampton,Ballera to Mt Isa and Ballera to Wallumbillapipelines were significantly inconsistent withthe code.

The Commission then estimated the returnon equity (RoE) for the derogated pipelines.For the Ballera to Wallumbilla and Ballera toMt Isa pipelines the RoEs were estimated to fall

within a reasonable range. In the case of theWallumbilla to Gladstone via Rockhamptonpipeline, the estimated RoE was at the high endof a reasonable range. Finally, for the Wallumbillato Brisbane Pipeline the estimated RoE washigher than could reasonably be expected inthe circumstances and may be inconsistent withthe code.

The Commission also expressed concern atthe lack of provision of access arrangementinformation and the significant length of mostnon-review periods.

In February 2001 the NCC made itsrecommendation to the Commonwealth Ministerregarding the certification application of theregime as an ‘effective’ regime. The Minister hasyet to make a decision.

This year the Commission assessed proposedaccess arrangements for these four pipelines.However, the Queensland Governmentderogated some elements of the code as itwould have applied to the pipelines. For example,the derogation provides for reference tariffs tobe set by the Queensland Minister for Minesand Energy. As a result, most of the typicallycontentious aspects of the access arrangementswere not open to Commission consideration forany of the four pipelines.

Wallumbil la to Gladstone viaRockhampton Pipeline: Duke EnergyInternational

Duke Energy International submitted a proposedaccess arrangement for the Wallumbilla toGladstone via Rockhampton pipeline on17 August 2000. As this pipeline is subject tothe Queensland Government derogation, theCommission did not consider reference tariffsor reference tariff policy in its draft decision.

One contentious aspect of this decision and forthe Ballera to Wallumbilla pipeline, is the issue ofreview triggers. Both pipeline owners argue thatreview dates were established in the derogationand that the Commission cannot require earlierreview. The Commission is concerned that thereview date of 2016 does not allow for review ofthe non-tariff elements of the arrangements if amajor shift in the market were to occur. Bothdraft decisions propose an amendment so that


the companies submit a list of specific majorevents that would trigger a review of the non-tariff elements under section 3.17 of the code.

The Commission is preparing a final decisionthat, pursuant to legal advice, requires Duke tosubmit a list of review triggers.

Ballera to Wallumbil la Pipeline:Epic Energy

Epic Energy (Queensland) submitted a proposedaccess arrangement for this pipeline on17 August 2000. The Commission releaseda draft decision on 13 June 2001 and a finaldecision is expected in September 2001.As described above, the QueenslandGovernment determined the reference tariffs forthis pipeline and set the review date at 2016.

Ballera to Mt Isa Pipeline:Carpentaria Gas Pipeline JointVenture

The Commission received a proposed accessarrangement for this pipeline, owned by theCarpentaria Gas Pipeline Joint Venture on5 November 2000. The Commission expectsto release a draft decision in August 2001.The Queensland Government has determinedthe reference tariff, and set the review date at2023.

Wallumbil la to Brisbane Pipeline:APT

APT submitted its proposed access arrangementfor the Wallumbilla to Brisbane pipeline (alsoknown as the Roma to Brisbane Pipeline) on6 November 2000. The Commission soughtlegal advice about the extent of the derogation,which appears to only apply to the pipeline upto a certain level of capacity. The Commissionalso sought legal advice on whether the codeallows the Commission to require a referencetariff for additional capacity. The legal advicestated that no additional reference tariffs can beset for a pipeline that is subject to a derogationunder the Gas Pipelines Access (Queensland)Act 1998.

The Commission will release a draft decision inAugust 2001.

Reference tariffs for this pipeline have also beendetermined by the Queensland Government; thereview date has been set at 2006.

Revisions to the PrincipalTransmission System accessarrangement: GPU GasNet

GPU GasNet submitted proposed revisionsto the Commission on 12 September 2000.It proposed to roll-in its $75.5 millioninvestment in the Southwest Pipeline to theaccess arrangement for the Victorian PrincipalTransmission System (PTS) and to increasetariffs on average by 12.8 per cent in netpresent value terms.

The Southwest Pipeline links the PTS with theWestern Underground Gas Storage facility,the Otway Basin gas fields and the WesternTransmission System. The Victorian Governmentdirected its construction after the September1998 explosion and fire at the Longfordprocessing plant, as part of a broader projectto supplement gas deliveries for the winter of1999.

GPU GasNet submitted that the pipeline wouldnot pass the code’s economic feasibility test asthe anticipated incremental revenue would notexceed the amount of the investment, but itcontended that it provides system-wide benefitsthat justify a higher reference tariff for all users.It argued that substantial system security andcompetition benefits arise from the creation ofa link with the underground storage facility andwith existing and prospective gas fields in theOtway Basin, by reducing reliance on Esso/BHP’sBass Strait gas supplied from Longford.

The Commission concluded that some systemsecurity benefits and competition benefits doarise from the investment, but that there wasinsufficient evidence of these benefits to justifythe proposed increase in the reference tariff.It also concluded that the proposed tariffstructure would be inconsistent with theprinciples of the code. The Commission alsohad reservations about the prudence of theinvestment.

The Commission issued a final decision on29 June 2001 not to approve the proposedrevisions. It recommended that GPU GasNetsubmit a revised proposal as part of the 2002scheduled review of its access arrangement whenthere would be firmer evidence of the likely useof the pipeline and its benefits.


Access undertaking: Duke EnergyInternational

Duke Energy International submitted anundertaking under Part IIIA of the TradePractices Act on 18 November 1999 outliningthe terms and conditions on which it proposedto make access available to third parties on theEastern Gas Pipeline (EGP). This pipeline runsfrom Longford in Victoria to Horsley Park inNSW.

The Commission released a final decision on28 August 2000 in which it decided that,because of the lack of available information andhaving regard to the matters in subs. 44ZZA(3)of the Act, it was not appropriate to accept theundertaking.

On 7 January 2000 the NCC received anapplication for coverage of the EGP under thecode. The NCC’s final recommendation, releasedon 30 June 2000, was that the entire pipelineshould be covered. On 16 October 2000 theMinister decided to cover the EGP. In October2000 Duke appealed and on 4 May 2001 theAustralian Competition Tribunal upheld theappeal and decided that the pipeline shouldnot be covered.

Victorian market and systemoperations rules

Victorian gas industry market and system

operations rules — amendments

After the Commission’s authorisation of theMSOR came into force in 1999 VenCorpapplied for minor variations that were grantedon 2 August 2000, 31 January 2001, 18 April2001 and 16 May 2001.

The Commission also approved VenCorp’scontinued role in relation to the liquid naturalgas (LNG) reserve and its entitlement to the

LNG storage capacity, pending a further reviewof VenCorp’s requirements.

VenCorp annual statement

Under the Victorian Gas Industry Tariff Order,VenCorp must seek Commission approval of anannual statement that sets out its total annualcosts and market fees for the forthcomingfinancial year.

After the level of system security chargeunder recovery was adjusted, the Commissionapproved VenCorp’s annual statement for2000–01 on 6 June 2000.

The Commission also requested furtherinformation on savings being passed on toconsumers, resulting from the introductionof the New Tax System. VenCorp gave theCommission a cost savings estimate of $19 200and a revised budget and market fee schedule toallow for these savings.

Liaison activity

Retail contestability

Full retail contestability (FRC) is being developedin New South Wales and Victoria. The time framefor NSW is July 2002 and for Victoria 1 October2002. Other States are taking a great interest asthey approach their own targets for FRC.

The Commission has liaised with the NSWGovernment and the Legal and RegulatoryAdvisory Group in Victoria to establishrequirements for the Commission’s authorisationof the arrangements, including possibleexclusivity of services and compliance withbusiness rules.

All jurisdictions have developed slightly differenttimetables; however, the table below outlines thegeneral evolution of FRC.

Table 6.2. The evolution of full retail contestability

Tranche Usage Description

1 from 1.10.99 >500TJ pa Major industrial

2 from 1.3.00 100–500TJ pa Large commercial

3 from 1.09.00 10–100TJ pa Small commercial

4 from 1.07.02 >1TJ Residential


Victoria has a market carriage system ofoperation, therefore implementation in Victoriawill differ from other States which have acontract carriage system.

NSW has an industry-driven body called theGas Market Company to oversee the FRC marketoperating rules. In contrast, Victoria is planningto establish a Victorian Gas Retail RulesCommittee composed of gas industryparticipants and stakeholders to providerecommendations to the VenCorp Board.

With respect to national consistency, eachjurisdiction is trying to meet their contestabilitytimetable commitments; some local variationsmay arise between jurisdictions in elements ofthe FRC arrangements. It is important thatjurisdictions maintain consistency so that anational energy market can evolve.

Regulatory arrangements for prospective

pipelines: preliminary discussion

During the year the Commission held preliminarydiscussions with several proponents ofprospective pipelines including:

• Duke regarding the construction of a pipelinefrom Longford in Victoria to various parts ofTasmania. On 9 April 2001 Duke announced ithad signed a contract for the manufacture ofpipe with which to construct the pipeline;

• Epic Energy regarding the planned 2200 kmpipeline from Darwin to Moomba, to bringTimor Sea gas to markets in southern andeastern Australia. The project was grantedmajor project facilitation status by theCommonwealth Government in November2000. Discussions between Epic and theCommission have focused on Epic’s plan tosubmit an access undertaking under Part IIIAof the Act rather than under the code. Epic isyet to submit an access undertaking; and

• proponents, including SeaGas’ plannedpipeline between Victoria and South Australia.

Natural Gas Pipelines Advisory Committee

CoAG established the National Gas PipelinesAdvisory Committee (NGPAC) on 7 November1997 to administer the national third partyaccess code for natural gas pipeline systems.Membership includes an independent chair and

representatives of the Commonwealth, Statesand Territories, together with industry andregulator representatives, including theCommission. Meetings are held every quarter.The code may be amended by agreementbetween the relevant ministers after arecommendation from NGPAC.

The code was amended to explicitly allowacross-period incentive mechanisms from11 November 2000.

NGPAC also recommended two significant codechanges. The first was to allow regulators toadminister the approval of tariff variations duringthe term of an access arrangement. The secondwas to remove the possibility that third partyaccess to a new pipeline could be regulatedunder both the code and Part IIIA of the Act.This change was initially proposed by theAustralian Pipelines Industry Association (APIA)on behalf of Epic Energy in the context of itsproposed new gas transmission pipeline betweenDarwin and Moomba as an interim measurepending the outcome of reviews of Part IIIAof the Act and the code.

Gas Policy Forum

The Gas Policy Forum was formed last year asthe principal body in CoAG to provide highlevel policy and advice to governments on theprogress in implementing gas sector reforms.This includes priorities for future gas policy toencourage ‘free and fair trade’ in the naturalgas market.

The forum is composed of senior officials fromeach jurisdiction, including the Commonwealth.Also included are the Australian Gas Association,the Australian Pipeline Industry Association, theAustralian Petroleum Production and ExplorationAssociation, the Business Council of AustraliaEnergy Reform Task Force and the ElectricitySupply Association of Australia. The Commissionand National Competition Council are alsorepresented.


Telecommunications



A Productivity Commission review oftelecommunications competition regulationis expected to conclude in September 2001.The Commission has made a series ofsubmissions to this review during the year.

The Commission began investigating about60 matters regarding alleged anti-competitiveconduct in telecommunications marketsduring the year. By the end of June 2001 theCommission was still investigating eight, havingassessed the remainder as not raising issuesunder Part XIB of the Act or having resolvedthe complaint.

The Commission also introduced a regulatoryaccounting framework under its record keepingrules. These rules will provide importantinformation to the Commission from carriers,to assist in achieving effective regulation underPart XIC of the Act, and in Part XIBinvestigations.

At the end of 2000–01 the Commission had21 current arbitrations of which 11 interimdeterminations had been issued. Of the 21,four concerned the public switchedtelecommunications network (PSTN), twoconcerned freephone and local numberportability, three concerned global system formobile communications (GSM), six concernedthe local carriage service, two concernedanalogue subscription broadcasting and fourconcerned the unconditioned local loop service.By the end of the year, a total of 25 arbitrationshad been finalised, six by determinations, two bytermination, and 17 settled (i.e. withdrawn).

The Commission also enforced the consumerprotection provisions of the Act as they applyto the participants in the telecommunicationsindustry.

Telecommunications competitivesafeguards — Part XIBThe Commission is responsible for administeringan industry-specific regime established by PartXIB of the Trade Practices Act, which empowersthe Commission to deal with anti-competitive

conduct in telecommunications markets andobtain information to help monitor competitionin the telecommunications industry.

Tariff filingsUnder Part XIB the Commission can obtaininformation on charges, terms and conditionsfor telecommunication services from carriersand carriage service providers.

The Commission’s tariff powers can be dividedinto two distinct parts:

• general tariff filing directions (Division 4 ofPart XIB); and

• Telstra-specific tariff filing (Division 5 ofPart XIB).

Tariff filing directions underDivision 4Section 151BK allows the Commission to issuea tariff filing direction for specified carriageservices, ancillary goods and services, if it issatisfied the carrier or carriage service providerhas a substantial degree of market power in atelecommunications market. Under such adirection the Commission can obtaininformation:

• about charges for the supply of the goods orservices, including any discounts, allowances,rebates, commissions or similar benefits; and

• about intentions, to be provided at leastseven days before it imposes a new charge,varies a charge or ceases imposing a charge.

In 2000–01 the Commission did not find itnecessary to use the powers defined underDivision 4.

Tariff filing by Telstra underDivision 5Division 5 of Part XIB requires Telstra tofile information for all of its basic carriageservices (BCS) with the Commission. A strictinterpretation would require Telstra to providecomplete detail of all offerings, both standardand individualised (non-standard), along with allvariations. However, both the Commission andTelstra saw providing all information underDivision 5 as administratively burdensome.Accordingly, a streamlined process wasdeveloped by identifying the relevant BCS andcharging information to help the Commissiondetect potential anti-competitive behaviour.


The Commission and Telstra agreed that in June1998 relevant information should be providedfor certain BCS while not causing practical andresource difficulties. The agreement also requiresan effective and efficient tariff filing process thatmeets the objectives of Division 5.

During 2000–01 Telstra complied with therequirements to provide tariff filing informationto the Commission except on one occasion.On this occasion Telstra failed to act within thespirit of the tariff filing arrangements by notnotifying the Commission of an increase in linerental until the afternoon before the increasewas announced publicly.

Record keeping rulesThe Commission has the power to mandatespecific record-keeping rules on selected carriersand carriage service providers. Section 151BUof Part XIB of the Trade Practices Act gives theCommission power to make rules requiring oneor more carriers or carriage service providers toretain records.

The rules have been used to implement anaccounting separation of an operator’s variousactivities. In May 2001 the Commission releasedthe Telecommunications Industry RegulatoryAccounting Framework. It is a vertical andhorizontal accounting separation model thatrequires revenue and cost information forwholesale and retail services to be reported tothe Commission every six months. Telstra, Cable& Wireless Optus, Primus, Vodafone and AAPTmust report under the framework.

The framework replaces the previous reportingrequirements set out in the Chart of Accountsand Cost Allocation Manual.

Record keeping rules — ULLSAfter the Commission declared the unbundledlocal loop in August 1999, Telstra announced itwas rolling out its digital subscriber line (DSL)services. The Commission was concerned thatother providers who planned to roll out servicesin competition with Telstra were not ready tolaunch their products. The Commission thereforeissued two record keeping rules.

The first issued in August 2000 to Telstra meansTelstra must give the Commission details ofexchange access arrangements. The second,issued in November 2000, requires Telstra toreport on the deployment and fault handling ofxDSL technology. This increased transparencywill help the Commission identify anti-competitive behaviour.

Major anti-competitive conductinvestigationsThe Commission began investigating about 60matters alleging anti-competitive conduct intelecommunications markets. By the end of theyear the Commission was still investigating eightof them, having assessed the remainder as notraising issues under Part XIB of the Act or ofhaving resolved the complaint. Following aresome matters finalised during the year.

Unauthorised customer transfer(slamming)

One.Tel and Primus

The Commission investigated many complaintsby consumers that they had been transferredto other telecommunications networks withouttheir consent. Most concerned the transfer oftelephone services by the agents of One.Tel andPrimus. The Commission instituted proceedingsagainst One.Tel and Primus in December 2000.

On 13 December 2000 the Commissionobtained orders by consent in the Federal Courtthat included injunctions that restrained One.Teland Primus from:

• engaging in misleading or deceptive conduct;

• fraudulently obtaining signatures or consentover the telephone;


• coercing or harassing potential customersinto transferring their phone services; and

• failing to notify consumers of applicablecooling off periods.

One.Tel and Primus also gave undertakings tothe Commission that they would:

• write to all affected customers and providecompensation and engage an independentassessor to review business practices,including marketing and complaint handlingpractices;

• adopt all relevant industry codes; and

• contribute a significant amount to theestablishment of a community awarenessand education initiative specifically targetedat raising consumers’ level of understandingof their rights when choosingtelecommunications providers.

The Commission worked closely with theTelecommunications Industry Ombudsman (TIO)in relation to this investigation. More recently,the Commission has utilised the services of theAustralian Communications Industry Forum(ACIF), TIO, the Australian CommunicationsAuthority (ACA) and other interest groups andstakeholders to identify and implement theconsumer education and awareness campaignfunded via settlement monies.

Axxess Australia Pty Ltd

Following further complaints in early 2001about slamming the Commission institutedproceedings against door to door salesagent Axxess Australia Pty Ltd in May 2001.The Commission alleges that Axxess employeesmade false and misleading representations andengaged in unconscionable conduct.

The Commission alleges that Axxess and itsagents illegally obtained signatures fromconsumers. The next hearing before the FederalCourt of the matter is set down for August2001.

Pre-paid GSM mobile services

In August 2000 Telstra introduced a shortmessage service (SMS) to prepaid GSMcustomers. The billing platform for the servicewas delayed, in some instances up to 48 hours.Complainants alleged that as a consequence ofthe delayed billing cycle they incurred negativebalances, or debts to Telstra that were onlydiscovered when they went to recharge theirservices.

Telstra responded to the concerns of theCommission by ensuring that the balances ofprepaid customers cannot fall below zero andcrediting those customers who recharged theircards while they had a negative balance.

Summary statistics

Number of current arbitrations 21

Of these, number of interim determinations 11

Number of other arbitrations being progressed 10

Number of arbitrations finalised 25

• by ACCC final determination 6

• terminated by ACCC 2

• settled by the parties (withdrawn) 17

Table 6.3. Telecommunications access disputes — Part XIC

Summary information on the arbitrations currently before the Commission is provided in thetables below.


Current arbitrations

Category Number of current arbitrations

Public Switched Telecommunications Network (PSTN) 4

Freephone and Local Number Portability 2

Global System for Mobile Communications/

Groupe Speciale Mobile (GSM) 3

Local Carriage Service (LCS) 6

Analogue Subscription Broadcast Carriage Service 2

Unconditioned Local Loop Service (ULLS) 4

Total number of current arbitrations — 21

PSTN

Access seeker Access Service/s Date Interim provider notified decisions

Telstra AAPT Domestic PSTN 22.11.99 4 November 2000

Terminating Access —

for data calls to ISPs

Telstra Primus Domestic PSTN 7.7.00 21 November 2000

Terminating Access —

for data calls to ISPs

Telstra PowerTel Domestic PSTN Terminating 5.12.00 2 April 2001

Access — for data calls to ISPs

Optus Telstra Domestic PSTN Originating 3.04.01

and Terminating Access

Notifications are typically made by the access seeker, unless indicated otherwise.

Number portability

Access seeker Access Service/s Date Interimprovider notified decisions

Cable & Telstra Freephone and local rate 12.3.01

Wireless Optus portability

Cable & Telstra Local number portability 20.4.01

Wireless Optus

Analogue subscription broadcast carriage service

Access seeker Access Service/s Date notified Interim decisionsprovider

TARBS Telstra Broadcasting Access Service 23.9.99 24 April 2001

C7 Telstra, Foxtel Broadcasting Access Service 31.8 & 1.9.00 5 April 2001

and related

parties

Local carriage service

Access seeker Access Service/s Date notified Interim decisions provider

Optus Telstra Local Carriage Service 13.8.99 20 June 2000

23 Oct 2000

(variation)

MCT Telstra Local Carriage Service 29.12.99 20 Dec 2000

Primus Telstra Local Carriage Service 7.3.00 29 January 2001

dingo blue Telstra Local Carriage Service 30.8.00

WorldxChange Telstra Local Carriage Service 8.12.00

people Telecom Telstra Local Carriage Service 28.5.01


GSM


AAPT Telstra Domestic GSM Originating & 16.3.99

Terminating Access

AAPT Vodafone Domestic GSM Originating & 30.11.99

Terminating Access

WorldxChange Telstra Domestic GSM Terminating 22.12.00

Access

ULLS


AAPT Telstra Unconditioned Local Loop 24.7.00 22 December 2000

CWO & Telstra Unconditioned Local Loop 27.7.00 22 December 2000

XYZed P/L

One.Tel Telstra Unconditioned Local Loop 4.8.00 22 December 2000

Primus Telstra Unconditioned Local Loop 9.10.00

Matters finalised

Access seeker Access provider Service Date resolved

AAPT Telstra PSTN 9 December 1997 — withdrawn

Telstra Vodafone GSM Terminating 11 November 1998 — withdrawn

Optus Telstra PSTN 21 December 1998 — withdrawn

Primus Telstra DTCS 2 April 1999 — withdrawn

AAPT Telstra Domestic Transmission 7 March 2000 — withdrawnCapacity Service

Cable & Wireless Telstra PSTN 15 May 2000 — withdrawnOptus (Optusnetworks & Optusmobiles)

Optus Telstra Local Number Portability Final determination 25 May 2000Routing Option

Optus Telstra Integrated Services 4 September 2000 — withdrawnDigital Network

AAPT Telstra PSTN Originating & Final determinationTerminating Access 13 September 2000

Appeal to ACT

Primus Telstra PSTN Originating & Final determinationTerminating Access 18 September 2000

Appeal to ACT

Flow Communications Telstra PSTN Originating Access Final determination,27 November 2000

RSL COM Telstra Local Carriage Service 4 December 2000 — withdrawn

Primus Vodafone GSM Originating & 5 December 2000 — withdrawnTerminating Access

Primus Optus GSM Originating Access 5 December 2000 — withdrawn

Macquarie Corporate Telstra Digital Data Access Final determination —Service Price 22 December 2000* Non-price terms and

conditions* Means by which Telstra

proposes to supply DDAS

AAPT Telstra Digital Data Access Service 2 January 2001 — withdrawn

AAPT Optus Domestic PSTN Originating 14 March 2001 — withdrawn& Terminating Access

AAPT Telstra Local Carriage Service 30 March 2001 — withdrawn

One.Tel Telstra Local Carriage Service 30 April 2001 — withdrawn

AAPT Optus GSM Originating & 2 May 2001 — withdrawnTerminating Access

WorldxChange Telstra Domestic PSTN Originating Final determination & Terminating Access — 4 May 2001

Telstra The Internet Domestic PSTN Terminating ACCC terminated 6 June 2001Group (Ihug) Access Service — for data— notifier calls to ISPs

Telstra Chime Domestic PSTN Terminating ACCC terminated 6 June 2001Communication Access — for data calls (iiNet) — notifier to ISPs

Primus Telstra Domestic GSM Withdrawn — 7.6.2001Terminating Access

Primus Optus Domestic GSM Withdrawn — 15.6.2001Terminating Access


Total matters finalised: 25


input services from Telstra known as domesticPSTN originating and terminating access services(the declared PSTN services). These involvecarrying calls between a consumer’s premisesand a point of interconnection, at which pointanother carrier may carry the call.

Telstra submitted an undertaking on24 September 1999 containing its terms andconditions for supplying the declared domesticPSTN services, especially the proposed chargesfor these services. In July 2000 the Commissionreleased a final report on the assessment ofTelstra’s undertaking rejecting the undertakingon the grounds that the proposed charges wereunreasonable.

The Commission was notified of several disputesbetween Telstra and access seekers about theterms and conditions under which Telstrasupplies this service. They were:

• AAPT on 11 December 1998;

• Primus on 5 February 1999;

• Flow on 7 January 2000; and

• WorldxChange on 28 December 2000.

The Commission issued final determinationsand concluded the arbitrations on 11 September2000, 18 September 2000, 27 November2000 and 4 May 2001 respectively. The AAPT,Primus and Flow determinations related topricing of the service for 1999–2000 and2000–01. The WorldxChange determinationdealt with charges for the 2000–01 period.

Telstra subsequently appealed to the AustralianCompetition Tribunal about the Commission’sfinal determinations for AAPT and Primus.The review of the Commission’s access chargesby the Tribunal has commenced and is unlikelyto be decided until mid-2002 at the earliest.The Commission provided its preliminary viewsto the tribunal in June 2001.

On 20 March 2001 the Commission was alsonotified of an access dispute between Cable &Wireless Optus and Telstra about the price fordomestic PSTN services for the period after1 April 2001. This relates primarily to a period(2001–02) for which no previous determinationhas been made by the Commission.

Telstra proposed to offer access seekers aheadline rate of 1.3 cents per minute for

Arbitrations

Unconditioned local loop service(ULLS)

An unconditioned local loop service (ULLS)uses unconditioned (copper) communicationswire between the network boundary (on theconsumer’s side) and a point where the wireterminates. The ULLS is used by access seekersto provide high bandwidth carriage services andlocal telephony services to consumers. Telstrais the main supplier of the ULLS, owning thecopper customer access network throughoutAustralia.

In July 1999 the Commission decided thatdeclaration of the ULLS would promote thelong-term interests of consumers of carriageservices, or of services provided by means ofcarriage services. The Commission released adiscussion paper in August 2000 on the pricingof the ULLS and submissions were received inSeptember 2000.

Consideration of ULLS pricing has coincidedwith the Commission being notified of severaldisputes between Telstra and access seekersabout the terms and conditions of this service.In particular, the Commission was notified ofdisputes by:

• AAPT on 25 July 2000;

• Cable & Wireless Optus (subsidiaries) on27 July 2000;

• One.Tel on 4 August 2000; and

• Primus on 9 October 2000.

The major issue is price and the Commissionissued three interim decisions on 22 December2000. Since then, the Commission has engagedconsultants to report on the appropriate size ofTelstra’s ULLS specific costs, as part of theCommission’s determination of the priceat which this service should be supplied.The Commission is working towards a finaldetermination.

Domestic public switched telephonenetwork (PSTN) originating andterminating access

To supply long distance, fixed-to-mobile andmobile-to-fixed call services to consumers inAustralia, service providers will often acquire


domestic PSTN access in 2001–02. This offer isbased on Telstra’s estimate of the price theCommission’s PSTN costing model wouldgenerate for 2001-02.

On 18 May 2001 the Commission consideredthe provisional headline rate of 1.3 cents perminute for access to Telstra’s domestic PSTN in2001–02 seemed reasonable. The Commission’sviews on this matter however, can not bind theCommission or any parties in the exercise of itsstatutory power, in the event that an accessdispute is subsequently notified by any industryparticipant or an access undertaking is lodgedfor approval.

Access to cable networks

In 1998 Television and Radio BroadcastingServices (TARBS) requested access to TelstraMultimedia’s broadband cable television networkpursuant to the Commission’s declaration ofbroadcasting service (including pay TV). Telstraand Foxtel objected on the grounds that theinitial service declaration was invalid because:

• the Commission incorrectly specified morethan one service or the Commission specifieda service that ‘did not exist’ on 13 September1996; and

• the imposition of an obligation on Telstrawould deprive Foxtel of a protectedcontractual right.

The Commission announced on 30 August 1999that, partly because of these doubts, it haddecided to declare an analogue subscriptiontelevision broadcast carriage service over cablelinks. It also decided not to declare a technologyneutral broadcast carriage service. However,the Commission stated that it was monitoringdevelopments in digital services, includingbroadcasting, to see whether declaration wasappropriate in future.

TARBS and Seven Cable Pty Ltd made accessrequests relying on both the 1997 deemedservice and the 1999 declared service. Telstraand Foxtel used similar arguments to those madeto TARBS to deny access to the cable.

In September 1999 TARBS sought Commissionarbitration for access to this service followingTelstra’s refusal to permit it, citing its protectedcontractual right with Foxtel. In October 1999

Seven Cable Pty Ltd sought a declaration fromthe Federal Court that Foxtel and Telstra did nothave a protected contractual right. Foxtel soughtdeclarations that both the 1997 and 1999services were invalid.

The Federal Court rejected Telstra and Foxtelclaims that they had a protected contractualright preventing anyone else accessing theTelstra network and also upheld the validity ofthe Commission’s pay TV declarations. Bothdecisions were appealed and the Full Courtdecided that the 1999 service declaration wasvalid and that neither Foxtel nor Telstra had aprotected contractual right. Foxtel has soughtspecial leave to appeal to the High Court.

In a related case, the Federal Court held thatFoxtel was a carriage service provider. The FullFederal Court rejected Foxtel’s appeal in thismatter. This decision potentially makes it easierfor new entrants to obtain meaningful access tothe broadband cable and in particular to Foxtel’sset-top units and conditional access system.

In September 2000, C7 Pty Ltd notified theCommission of access disputes with Telstra andFoxtel over access to Telstra’s cable network inproviding pay TV services. The Commissionissued interim decisions for both the C7 andTARBS disputes in April 2001.

GSM mobile telephony pricingprinciples

Following notification of several access disputesin 1999 about GSM originating and terminatingservices, the Commission decided to considerthe appropriate pricing principles for theseservices.

The Commission engaged external economicconsultants and released a discussion paperbased on their advice in December 1999.Subsequently submissions from industry weresought and an industry round-table held. Afterissuing a draft report on its preliminary pricingprinciples in December 2000, the Commissionsought further submissions.

The final Commission report, PricingMethodology for the GSM TerminationService, was released in July 2001. The report established that there are particularcharacteristics of the GSM terminating service


requiring it to be regulated at this time. A retailbenchmarking approach where access prices forthe GSM terminating service fall at the samerate as retail price movements for each carrier’soverall mobile package, was the preferredregulatory approach.

It was found that the competitive forces on theGSM terminating service were limited and thatintegrated mobile carriers had some ability torestrict price competition in the downstreammarket for fixed-to-mobile calls. However,the retail element of the mobile market isincreasingly competitive with falling retail pricesand a wide variety of retail products on offer.Pegging access prices to retail price movementsensures that the GSM terminating servicereflects the competitive elements of the retailmobile services market.

The Commission intends to use these pricingprinciples to finalise the access disputes inrelation to the GSM terminating service.

Exemption applicationsPart XIC of the Act provides that a carrieror CSP may apply to the Commission for awritten order exempting it from any or all ofthe standard access obligations that applyto a declared service. These require an accessprovider to supply the declared service to theaccess seeker if requested. If the Commissionbelieves that an order for an individualexemption is likely to have a material effect onthe interests of a person, it must publish theapplication and invite submissions on whetherthe application should be accepted.

Local carriage service exemptionapplicationsOn 7 June 2000 Telstra applied to theCommission for an exemption from itsobligations to supply the local carriage serviceto its competitors in the CBD areas ofMelbourne, Sydney, Brisbane, Adelaide andPerth. The application noted that it is to be oneof several applications designed to phase outTelstra’s standard access obligations for thelocal carriage service, over twelve months.

Telstra lodged a second application in November2000 for an exemption from its obligationsto supply the local carriage service to itscompetitors in the CBD areas of Hobart,

Canberra and Darwin, metropolitan areas ofall capital cities, and three regional centres,Newcastle, Wollongong and Geelong.

The Commission also decided to considerclass exemptions in the areas covered by theapplications, and sought comment on theseas well.

A facilities audit oftelecommunications infrastructureIn December 2000, the Commission engagedBIS Shrapnel to prepare a facilities audit oftelecommunications infrastructure in Australia.The report, Telecommunications infrastructuresin Australia 2001, was released in July 2001.It details telecommunication technologies,market participants, capital expenditure, stage of roll-out, planned coverage and issuessurrounding investment in infrastructure. It isbased on research by BIS Shrapnel and a surveyof over 50 telecommunications carriers inAustralia.

The report was commissioned to address theabsence of reliable and up-to-date informationon investment and competition in the Australiantelecommunications market. It will be avaluable reference for industry participants,commentators, and the Commission itself.

The Commission intends to commission regularupdates of the report to keep track of ongoinginfrastructure development.

Mobile number portabilityDuring 2000–01 the Commission assisted inoverseeing the introduction of mobile numberportability (MNP). The ACA has the primaryregulatory responsibility. Commission staffregularly attended meetings convened by theACIF to devise the network arrangements andtechnical solutions for MNP. The ACIF developedan industry code for MNP that details thestep-by-step processes to be used by carriersand carriage service providers. Industry hasagreed that this code will be registered bythe ACA making it enforceable.

The ACIF has prepared numerous documentsto help put MNP into practice (e.g. MNPframework; a network plan for voice, data andfax; an interconnection implementation plan;a network plan for SMS and IT systemsspecifications).


Implementation of MNP is on track for25 September 2001.

Pricing principlesIn May 2001 the Commission released itspricing principles for MNP. They are theprinciples the Commission will generally apply ifit has to arbitrate a dispute over the terms andconditions of mobile number portability betweenthe service providers involved.

Local number portabilityIn November 2000 the ACIF decided to reviewits industry code on local number portability(LNP), including the IT specifications andoperations manual. This decision met concernsthat the code required updating to reflectrecent changes such as the introduction of theunconditioned local loop service. Several carriersand carriage service providers are also affectedby LNP.

The revised LNP code and associated documentsshould be completed by the end of 2001.

Portability of national and premiumrate service numbersAt the request of the ACA, the Commissioncommenced its consideration of mandatingportability for national rate and premium rateservices.

National rate services are non-geographicservices specified in the 170X number range.The charge for them must not exceed thehighest rate charged by the national providerfor a call from a standard service to an Australiangeographic number. National rate services arenot currently available and no carrier holds anallocation of national rate numbers.

Premium rate services are non-geographicservices specified in the 190X numberrange. These are charged at a premium rate,independent of content or delivery technology.Telstra is currently the sole carrier providingthem.

After consulting widely with a discussion paperissued in June 2000, the Commission begandrafting its preliminary view which will beavailable early in the new financial year forfurther comment.

Transmission inquiryAs part of the inquiry into the declarationof intercapital transmission capacity, theCommission issued a discussion paper in June2000 seeking submissions. The Commissionreleased a report in May 2001 containing itsdecision to vary the transmission capacityservice to exclude intercapital transmissioncapacity from the declaration. Consequentlythe transmission capacity service betweenBrisbane, Sydney, Canberra, Melbourne,Adelaide and Perth is no longer subject toaccess regulation as from 31 May 2001.

The Commission believes that varying theservice description to remove the remainingintercapital transmission routes from declarationwill be in the long-term interests of consumers.The intercapital transmission market appears tobe moving towards greater competition. Marketentrants to date have focused on the busyeastern seaboard routes (Melbourne, Canberra,Sydney and Brisbane). However, new entryappears likely between Melbourne and Perth.

The level of new entry and discussions with newentrants suggests that declaration has notadversely affected efficient investment. Accessseekers are already receiving lower prices fortransmission and for larger access seekers, moreflexible terms and conditions for the service.With the entry of new carriers, access seekerswill receive even more competitive prices whichshould benefit consumers with greater choice ofsuppliers, lower prices and new services.

The Commission will still continue to monitorthe intercapital transmission capacity service.

The monitoring program will include major newentrants, such as Macrocom, PowerTel, Amcomand Soul Pattinson Telecommunications, as wellas Cable & Wireless Optus and Telstra.

Telstra carrier charges — pricecontrol arrangementsPrice control arrangements with Telstra were firstintroduced in 1989. Since then, the Governmenthas conducted periodic reviews, the most recentbeing in February 2001 which extended thepresent price control arrangements to June2002. Under the arrangements, the Commissionis responsible for assessing the accuracy andcompleteness of Telstra’s audited report.


The price control arrangements cover price capson telecommunications services including localcall, line rental, mobile, STD and IDD servicesas well as particular services. The latter includea 22 cent price cap for local calls and arequirement for local call charges to be broadlythe same for both metropolitan and non-metropolitan consumers. There are alsosub-caps relating to ‘low-spend’ consumers.

The Commission is satisfied that Telstra hascomplied with the price cap requirements forthe 1999–2000 financial year, including themetropolitan/non-metropolitan pricing parityrequirement for residential and businesscustomers.

Price control review — otherOn 21 August 2000 the Commission wasdirected by the Minister for Communications,Information Technology and the Arts underthe Telecommunications Act 1997 to reviewthe Telstra price controls which the Commissionadministers.

The Commission held a public inquiry intowhether price control arrangements on Telstrashould continue after the expiry of the TelstraCarrier Charges — Price Control Arrangements,Notifications and Disallowance DeterminationNo.1 of 2000 on 30 June 2001. The inquirywould also determine what form they shouldtake, if the Commission considered there wasstill a need. This includes the duration, means ofimplementation and mechanisms for their review.

The Commission’s final report on 14 February2001 concluded that competition is still notsufficiently developed to warrant the full removalof price control arrangements. To address theform of future price control arrangements, theCommission made the followingrecommendations.

• A broad CPI–X per cent price cap should beretained for the next price control period(although mobile services — with theexception of fixed-to-mobile services — andleased line services should be removed fromthe cap).

• The level of X for the broad basket of servicesshould be about 5 per cent, and should applyfor three years.

• All other existing sub-caps in the price controlarrangements (other than the 22 cent sub-cap on local calls) and the local call parityrequirement should be removed.

• The revenue weights used to determinewhether Telstra has complied with its pricecontrol arrangements should be based onpast year revenue levels.

• Targeting of low-income groups should bebased on measures of income rather thanusage levels for telecommunications services.

• Targeted assistance or other equity measuresrecommended in this report should be fundedfrom government or industry-based sources.

• There should be an adjustment period overwhich rebalancing of line rental price canoccur.

Telecommunications industry codes

Austral ian Communications IndustryForum (ACIF)

During 2000–01 Commission staff participatedas observers on several code committeesorganised by the ACIF, the industry bodyfor telecommunications companies.

ACIF committees comprise representatives of thetelecommunications industry, consumer groupsand government regulators (such as the ACCC,the ACA and the Telecommunications IndustryOmbudsman). A number of codes are currentlybeing developed to cover issues such as:

• mobile number portability;

• customer transfer;

• handling of life threatening and unwelcomecalls;

• call charging and billing accuracy;

• end-to-end network performance; and

• high capacity local loop (copper).

The Commission considers consumer protectionissues as well as operational and network issues.

The ACIF’s Code Administration and ComplianceScheme will continue to monitor compliance ofindustry participants who are signatories tothese codes.


If codes are registered with the ACA, it can takeenforcement action against industry participantsfor failing to comply.

Telecommunications Access Forum

The Commission considered during 2000–01proposed variations to the TAF code coveringservice descriptions and model terms and for thestandard access obligations for the local carriageservice and the unconditioned local loop service.The Commission is still considering them.

AuDA Competition Policy Panel

The Commission was also involved in developingnew structures and standards for the issuing andregistration of Internet names. An advisory panelwas established by the National Office for theInformation Economy (NOIE) to provide aframework for the self regulatory body,Australian Domain Names Administration(AuDA), to implement competition amongregistrars and registries in providing Internetaddresses or domain names that end in ‘.au’.

During July 2001 the panel presented itsrecommendations and it is expected that NOIEand the Government will shortly consider theadoption of this industry self-regulation model.

Air transport



The Commission is responsible for economicregulation of Sydney airport and 11 privatisedairports: Adelaide, Alice Springs, Brisbane,Canberra, Coolangatta, Darwin, Hobart,Launceston, Melbourne, Perth and Townsville.It assesses proposals by Airservices Australiato increase charges for terminal and en routenavigation services and rescue and fire fightingservices.

Over the year the Commission’s focus inadministering the arrangements has been to:

• assess proposed price increases at Sydneyairport;

• provide input into the ProductivityCommission’s inquiry into price regulationof airport services;

• assess proposals for new or increased chargesto fund new airport investment; and

• assess airport price cap compliance andmonitor quality of service.

The Commission also assessed a pricenotification submitted by Airservices Australia.

Sydney airportOn 11 May the Commission issued its finaldecision on Sydney Airports CorporationLimited’s (SACL) proposal to increaseaeronautical charges at Kingsford Smith airportby around 130 per cent. The proposals relatedto aircraft landing charges, international terminalcharges, apron use charges, helicopter chargesand general aviation parking charges.

The Commission objected to the increaseproposed, but not to a lower increase.The prices accepted will increase SACL’s annualrevenue from around $93 million to $183million, an increase of 97 per cent. The highercharges apply to airlines. If passed on topassengers, the increases will add around $3 toa domestic return flight from Sydney airport andaround $14 to an international return flight fromSydney airport.

The decision followed extensive publicconsultation. It approved a substantial part ofthe increases sought by SACL. The Commissionconsidered that the increases would give SACL areasonable return on its investments and wouldcompensate SACL for major new investmentsundertaken leading up to the Olympics.

However, the Commission considered that theland valuation used was too high and that SACL’sproposals did not take into account the impactof future cost reductions.

The Commission also expressed concern abouthow SACL applied the ‘dual till’ approach topricing, even though it accepted that basicmethodology. Details follow.

Land valuation

SACL valued aeronautical land by estimating thesite’s market value in its best alternative use, thatis, mixed residential, commercial and industrialuses.

The Commission supported the broad principlesSACL used in valuing land but questioned theirapplication. The Commission accepted advicefrom independent consultants to use the historiccost of the site indexed by CPI. Historic cost hasthe advantage that it is readily identifiable andless subjective than the principles proposed bySydney airport. It provides compensation toSACL for investments into land alreadyundertaken. It also offers incentives for theairport operator to acquire additional land.

Operating and maintenance costs

Based on the experience of the privatisedairports it can be assumed that Sydney airportwill achieve significant savings in operating andmaintenance costs over time. The Commission’sdecision factored real reductions of four percent per annum into its draft decision, reflectingthe average saving achieved by Melbourne,Brisbane and Perth airports since privatisation in 1997.

‘Dual t i l l ’ pricing

SACL’s proposal for a ‘dual till’ approach topricing conceptually separated aeronauticalservices from other services provided at theairport. The proposal then set aeronauticalcharges on the basis of the cost (including a rateof return on assets) of providing the services.

The approach differs from the ‘single till’adopted in the past by the previous operator,the Federal Airports Corporation. The FACadopted a rate of return target for the airportas a whole, and set aeronautical charges to meetthe rate of return. Since profitability on non-aeronautical services was high, and typically wellabove the target rate of return for the airport asa whole, this meant that returns on theaeronautical side of the business were low.

The Commission adopted a dual tillmethodology as distinct from the single till methodology proposed by airport users. The Commission considered focused regulationon areas where the airport has market power


and is more likely to promote efficient pricingoutcomes. Those services which are relativelycontestable, such as duty free, are not subject to prices oversight.

However, the Commission had reservationsabout SACL’s application of the dual tillmethodology. In its draft decision theCommission took SACL’s financial performance in providing ‘aeronautical-related’ services intoaccount, believing the resulting aeronauticalprices would yield better economic efficiencyoutcomes and more effectively constrain marketpower than SACL’s proposals. The aeronautical-related services taken into account includedaircraft refuelling, check-in counters and carparks.

The Commission’s final decision moved awayfrom this position, after the Minister for FinancialServices and Regulation issued a new directionon 19 April 2001 under s. 20 of the PricesSurveillance Act 1983. While such directionsdo not bind the Commission to a particularapproach, it must give them specialconsideration in making its decisions. In this case the Commission considered thatthe direction warranted a departure from theapproach taken in the draft decision.

In effect the stated policy applies the dual tillapproach on a narrower basis than proposed bythe Commission in its draft decision. In practicalterms this means that aeronautical-relatedservices should not be taken into considerationin setting aeronautical charges at Sydney airport.Implementation of the policy resulted in higherprice increases than proposed by theCommission in its draft decision.

Inquiry into price regulation ofairportsOn 1 June the Commission provided itssubmission to the Productivity Commission’sinquiry into price regulation of airports, giving adetailed assessment of the need for regulationof airport services. It also examines what formany regulations should take. The submissionconcludes that there is a strong case forcontinued regulation of Australia’s large airportsbecause these airports are regional monopolies.Except for smaller regional services travellershave no alternative to flying into cities such asSydney, Melbourne or Brisbane. The submission


In developing its submission the Commissionsought advice from KPMG on the profitperformance of the privatised airports, NECGon incentives for new investment and ProfessorStephen King on market power.

Price cap

Price cap compliance

CPI–X price caps apply to the larger privatisedairports. The compliance results for 1999–2000were as follows.

• Brisbane and Perth airports did not complywith the cap. Brisbane airport’s cumulativeover-recovery in 1999–2000 was over$1 million. Perth airport has over-recoveredfor the past three years amounting now to$560 000.

• Melbourne, Adelaide, Alice Springs, Canberra,Darwin, Launceston and Townsville airports allcomplied with the price cap.

• Coolangatta and Hobart airports haveover-recovered against the price cap, butare expected to have complied by the endof this year.

Brisbane and Perth airports did not complywith the price cap because they introduced taxi

argues that deregulation is likely to result inlarge increases in airport charges. These wouldbe borne by airport users and could alsodamage Australia’s tourism industry.

Currently CPI–X price caps apply to all ofAustralia’s larger privatised airports. TheCommission’s submission recommends continuedprice cap regulation, but with some changes.The main proposals are as follows.

• Price cap major airports but not some of thesmaller airports currently regulated such asAlice Springs, Coolangatta and Launcestonairports. Monitor prices at these airports as a transitional measure.

• Introduce new provisions to further encourageairport operators to undertake investment.

• Continue to include taxi charges in the pricecap.

The Commission also proposes including aircraftrefuelling services in the services covered by theprice cap. Failure to do so risks ‘regulatorybypass’. There is already evidence of this. Thecurrent price cap aims to reduce airport landingcharges over time. The introduction of fuelthroughput levies at some of the airports hasoffset a substantial part of those reductions.


charges without compensating reductions inother charges.

Airport taxi chargesThe Commission believes that charges leviedby airport operators on taxis fall under thedefinition of an aeronautical service and aresubject to the price cap. This view was contestedby Canberra airport in a Commission decisionabout the $2 taxi charge introduced byCanberra in mid-2000. Canberra airportinstigated an action in the Federal Courtagainst the Commission under the AdministrativeDecisions (Judicial Review) Act 1977 (Cth).

On 23 March 2001 the Federal Court ruled inthe Commission’s favour, concluding that taxifees at Canberra airport are covered by the pricecap on aeronautical services. The effect of thedecision is that the Commission must take theproceeds of the taxi charge into account whenassessing Canberra airport’s compliance withthe price cap. The decision is relevant to taxicharges at other privatised airports, includingthe charges introduced at other airports.

Security chargesThe price cap instruments include a passthrough provision for direct costs of providingcompulsory airport security such as passengerscreening, baggage screening and counterterrorist security.

During 2000–01 the Commission assessed fivesecurity pass through notifications, one relatingto checked baggage screening, one to passengerscreening and three to CTFR (counter-terroristfirst response).

New investmentThe price cap arrangements include provisionsto pass on the costs of necessary newinvestment. They allow airport operators toincrease charges to fund new investmentprovided they have Commission approval.

In assessing proposals from airport operatorsthe Commission must consider several criteriasuch as user support for the proposals andthe relationship between the proposed priceincreases and the costs of the new investments.The Commission’s assessment typically involvespublic consultation.

In 1999–2000 the Commission assessed eightnew investment proposals.

• Brisbane airport. On 18 May Brisbane airportapplied to increase landing charges to fundinvestments in new taxiways, aprons, theinternational passenger terminal and thecommon user domestic terminal. TheCommission agreed to the increases on22 June. The Commission has now passedthrough the price cap charges covering $47million in new investments at Brisbane airport.

• Melbourne airport. In June 2000 Melbourneairport proposed increases in general andinternational landing charges to fund projectsincluding road works, environmental worksand an apron extension. In October theCommission decided to pass through lessthan half of the increase sought becauseAPAM did not have user support for many ofthe proposals. Some related to investmentsalready completed by the FAC beforeprivatisation while others did not relate tonew investment but instead covered ongoingoperating and maintenance expenditures.

• Melbourne airport — taxi charges.On 30 March Melbourne airport soughtapproval to pass a new taxi charge of $1.40through the price cap. The Commissionreleased its decision on 25 May, agreeingto a charge of $0.66. There were three mainreasons for adopting a lower price. The firstwas that a significant part of the proposedcharge related to pre-existing ongoingoperating expenses not related to newinvestment. The second was that theCommission considered some of the costsdid not relate to aeronautical services.The third was that some of the costs relatedto replacement of assets rather than newinvestment.

• Coolangatta airport. On 18 April Coolangattaairport proposed charges to recover the costof a $2 million new passenger terminal toservice international flights from New Zealandand to accommodate new entrant airlines.The Commission released a final decision on10 May which allowed Coolangatta airport topass the charge through the price cap.

• Canberra airport — new apron and passengerwalkway. These two projects cater for trafficgrowth at the airport and the operations of


new airline entrants. The Commission did notobject to price increases to recover the costsof both projects. Canberra airport submittedits proposal on the apron extension on25 May 2000. The Commission released itsfinal decision on 2 August 2000. Canberrasought approval for a passenger walkwayservicing the apron on 11 December 2000.The Commission released its final decisionon 28 March.

• Canberra airport — passenger terminalredevelopment works. Canberra airportproposed price increases to fund theterminal works on 12 February 2001 andthe Commission released a draft decisionon 27 February. Canberra then sought anextension to conduct further consultationand resubmitted a proposal on 29 May.

The Commission’s final decision was on 5 July.While the Commission agreed to most of theproposed increases, it objected to a charge torecover the cost of a covered walkway throughthe car parks. The Commission decided thispart of the project should be funded fromthe revenue Canberra airport derives fromthe car park. The decision means that theCommission has now passed through chargescovering $9 million in new investments atCanberra airport.

• Northern Territory airports (Darwin and AliceSprings). On 25 May Northern Territoryairports proposed increased landing chargesto fund projects at Darwin and Alice Springsairports including environmental works, anapron extension, new taxiways and investmentinto airport security. On 3 October theCommission released its decision which didnot object to increases in charges to fundabout $1.3 million in new investment but didnot pass through all of the increases sought.The two reasons for this were first, users didnot support some of the proposed projects,and second, several projects did not relate tonew investment but instead covered operatingand maintenance expenditures.

Regulatory reportsEach year the Commission releases regulatoryreports covering Sydney airport and 11privatised airports: Adelaide, Alice Springs,Brisbane, Canberra, Coolangatta, Darwin,Hobart, Launceston, Melbourne, Perth and

Townsville. The reports provide information onquality of service, financial accounts, price capcompliance and prices, costs and profits ofmonitored aeronautically related services.

The Commission released the 1999–2000reports in April.

Quality of service

Under the Airports Act 1996 the Commissionmonitors airport quality of service, collectinginformation from airport operators, AustralianCustoms Service and Airservices Australia.The information includes data from customerperception surveys. The Commission alsoconducts airline surveys.

Over the year quality of service for the threePhase I airports and Sydney airport wasgenerally rated as satisfactory. Brisbane airportachieved high quality service ratings frompassengers and airlines for the second year insuccession. Perth airport users and passengersalso provided a good rating for quality ofservice. Although passengers at Melbourne andSydney airports were very satisfied with thequality of service at these airports, airlineswere less satisfied overall than the previousyear with service quality. However, both airportsundertook significant construction works during1999–2000, which would have affectedoperations.

Financial accounts

The regulatory reports indicate that all of theprivatised airports (except Townsville) madelosses in 1999–2000 after interest and tax weretaken into account. However, advice from KPMGshows that pre-tax operating returns on non-current tangible assets at the airports averaged9.6 per cent and a respectable 13 per cent atthe Phase I airports. KPMG also noted thatprofit performance is in line with expectations.

Prices monitoring outcomes

The Prices Surveillance Act requires theCommission to monitor prices, costs and profitsof aeronautical-related services such as aircraftrefuelling, car parks and airline check-in services.

The monitoring shows that revenues raised fromfuel throughput charges introduced by Brisbaneairport in July 1998 and Perth airport in June


1999 are disproportionate to the costs incurredin providing refuelling services. In Brisbane thelevy raised over $2.5 million in 1999–2000.In Perth it raised over $700 000 over the year.

The Commission reported on the introductionof fuel throughput levies in a December 1998report to the Government, concluding thatairport operators have taken advantage ofmarket power. The report recommended thatstricter prices oversight should be consideredin aircraft refuelling services.

The Government has asked the ProductivityCommission to consider the report’srecommendations as part of its inquiry intoprice regulation of airport services.

Airservices AustraliaOn 8 June Airservices Australia notified for a newterminal navigation charge at Hamilton Island.Airservices did not increase any other charges.On 25 June the Commission released a decisionnot objecting to the proposed new charge.

Rail


• Access to essential services is made onreasonable terms and conditions.

Australian Rail Track Corporation (ARTC)was established under an intergovernmentalagreement signed by all governments in 1997.One of its key elements was to realise acoordinated approach to rail reform. ARTC’sprimary objective is to promote use of Australia’snational rail network linking all capital cities byproviding a single point of access to providers ofrail freight services whose operations traverseState jurisdictions. ARTC owns the line in SA(including the track to Kalgoorlie in WA andBroken Hill in NSW) and has control over thetrack in Victoria where it has a lease agreementin place.

The Commission received an access undertakingunder Part IIIA of the Trade Practices Act fromARTC which covers terms and conditions ofaccess to rail tracks owned or leased by ARTC.The tracks are part of the interstate mainline

standard gauge track linking Kalgoorlie inWestern Australia, Adelaide, Wolseley andCrystal Brook in South Australia, Broken Hill inNew South Wales and Melbourne and Wodongain Victoria.

The Commission must go through a publicconsultation process before accepting theundertaking and has distributed an issues paperinviting comments and submissions on the ARTCaccess undertaking. The Commission intends topublish a final decision by the end of 2001.

The regime covering the proposed rail line fromTarcoola in South Australia to Darwin in theNorthern Territory has been certified effective,and in Victoria, a rail access regime coveringintrastate services became operational on 1 July2001 with the Office of the Regulator Generalthe nominated arbitrator.

The rail reform processEstablishing a national regime requirescooperation from States which they have given invarying degrees. The process has been difficult— ARTC was not able to lodge an undertakingfor tracks in NSW, WA and Queensland becauseof uncertainty about whether the agreementswith these States gave ARTC the necessarycontrol over the infrastructure. The submissionby ARTC of an undertaking covering access totracks under its direct control in SA and Victoriareflects these difficulties.

The concern was that under the proposedaccess arrangements with Queensland, NSWand WA, ARTC would not be an access providerunder Part IIIA, and would therefore have nobasis to submit an undertaking on its own behalf.ARTC would be unlikely to be considered tohave a significant degree of control over theoperation of the facilities and would thus notbe a provider under s. 44G.

Access to parts of the interstate network ownedby Queensland, NSW and WA are subject toState access regimes. However, no State regimecovering intrastate services is certified ‘effective’under Part IIIA of the Act.

The NSW regime was certified effective by theNCC in November 1999 but certification expiredon 31 December 2000. Tracks in NSW are anintegral part of the interstate network.


The WA government has submitted and sincewithdrawn an application to the NCC forcertification of its access regime. ARTC hasnegotiated a wholesale access agreement withthe consortium successful with the bid forWestrail’s freight business in WA, AustralianRailroad Group (ARG). Existing accessagreements between operators and Westrail weretransferred to ARG. ARTC has the right to sellaccess to new operators and existing operatorswishing to re-negotiate their present agreementswith ARG. Under this agreement, ARTC does nothave control over the interstate track fromKalgoorlie to Perth, but merely the right to sellexcess capacity up to a stipulated maximumcapacity on the track. ARG manages andcontrols the network.

Queensland Rail has applied to the QueenslandCompetition Authority to approve its accessarrangements for intrastate services and is thenexpected to apply to the NCC for certification.

The regime covering the proposed rail linefrom Tarcoola in SA to Darwin in NT has beencertified effective. ARTC presently owns theexisting line from Tarcoola to Alice Springs.Under the regime ARTC will hand overownership of the line to the operator of theTarcoola–Darwin project when the link from

Alice Springs to Darwin is completed. ARTCwill negotiate access to on-sell to interstateoperators.

In Victoria, a rail access regime coveringintrastate services established under the RailCorporations Act 1996 became operationalon 1 July 2001. The regime is based on anegotiate-arbitrate model. The Office of theRegulator General is the nominated arbitratorand has issued guidelines for informationrequirements and access pricing principles. The intrastate tracks and freight business havebeen sold to Freight Australia. Freight Australiahas applied to the NCC for declaration of itsown track services.

Utility Regulators’ ForumIn 1997 the Commission, in conjunction withother State-based regulators, established theUtility Regulators’ Forum — a committee ofregulatory agencies — to promote informationsharing and consistent policy development.Business and community organisations areinvited to attend. Priority issues include:

• incentive regulation, benchmarking and utilityperformance;


• comparison of regulated rates of return;

• transmission — regulating new jurisdictions;and

• transmission and distribution pricing.

Several meetings have been held over the last 12 months and regular issues of the newsletter,Network, have been published, which is postedon the Commission’s Internet website.

The forum released a discussion paper, Incentiveregulation, benchmarking and utility performance, in November 2000 and copies can be boughtfrom the Commission’s Melbourne office orare available on the Commission’s website.In response to this paper, Citipower publishedtwo discussion papers, Incentive regulation,benchmarking and utility performance —Citipower’s response to the Utility Regulators’ Forumdiscussion paper in March 2001 and Incentiveregulation and external performance measures:operationalising TFP — Practical Implementationissues in June 2001. Copies are available fromCitipower.

The member agencies of the forum are:

The Australian Competition and ConsumerCommission (ACCC)

NSW Independent Pricing and RegulatoryTribunal (IPART)

Victorian Office of the Regulator-General(ORG)

Tasmanian Government Prices OversightCommission (GPOC)

Office of the Tasmanian Electricity Regulator (OTTER)

Queensland Competition Authority (QCA)

WA Office of Gas Regulation (OffGAR)

Office of Water Regulation — WA

SA Independent Pricing and Access Regulator (SAIPAR)

SA Independent Industry Regulator (SAIIR)

ACT Independent Competition andRegulatory Commission (ICRC)

Northern Territory Utilities Commission(NTUC)

National Competition Council (NCC)

NZ Commerce Commission

Prices monitoring



Review of the Prices Surveillance Act 1983The Commonwealth Government asked theProductivity Commission to review the PricesSurveillance Act 1983 as part of the CompetitionPrinciples Agreement requirement to review alllegislation that restricts competition.

The Commission made a submission tothe review in June 2000. It presented asupplementary submission in February 2001in response to the review’s interim report.

The Commission made a further submissionin May 2001 in response to the release of thereview’s draft report.

The submissions argued that a generic pricesoversight regime is still justified and shouldcontain price notification, price monitoringand public inquiry functions. The Commission’sexperience with the Prices Surveillance Act,however, leads it to argue for changes to theexisting regime to improve its effectiveness,consistency and transparency. The Commissionhas already adopted some of these changes inits own procedures.

Some of the key changes to the existing regimethat the Commission suggested are:

• legislative criteria to ensure that pricesoversight is applied in a consistent andtransparent manner;

• prices oversight of oligopolistic industries incertain circumstances;

• implementation of prices oversight without aprior public inquiry in certain circumstances tomaintain flexibility and to minimiseadministration costs;

• full responsibility for the implementation ofthe regime by the regulator, includingselecting appropriate indicators and/ormethod for setting price, including incentivebased regulation; and


• mandatory compliance with the regime byregulated firms. Prices oversight would focuson monopolistic firms with market power.Such firms can afford to ignore voluntaryprices oversight and therefore strong powersare needed to ensure they comply with theregime.

Parallel imports of books andcomputer softwareThe Copyright Amendment (ParallelImportation) Bill 2001 was introduced intoParliament in February 2001. The bill amendsthe Copyright Act 1968 to allow the parallelimportation of computer software products,books, periodical publications and sheet music.

In its April 2001 report on the issue, theCommission found that the importationprovisions of the Copyright Act restrictcompetition to the detriment of consumers.Consumers often pay too much for books andcomputer software and are not always able toaccess them quickly.

The Commission’s own surveys suggested thatsome titles of both books and computersoftware are priced competitively with overseasalthough other areas aren’t. Price differentialsare sensitive to relative movements in theAustralian currency. The recent depreciationof the Australian dollar against the UK and UScurrencies has reduced the price differentials.Over the longer term, however, positive, andoften large, differentials have been the norm,to the detriment of Australian consumers.

The Commission recommended in its reportthat the parallel importation provisions of theCopyright Act be repealed as they applyto books and computer software.

Petroleum products

Outline of price monitoringprogram

Since petrol pricing was deregulated on1 August 1998 the Commission’s main role hasbeen to monitor petrol prices in the capitalcities and country areas, particularly ‘hot spots’.The Commission examined prices anddetermined notional retail margins by comparingthem with an internal import parity indicator.The Commission also monitored the wholesalelist price and the terminal gate price of some ofthe oil majors.

In June 2000 the Commission expanded itsmonitoring program to more effectively assessprices under the New Tax System. Average retailprices for unleaded petrol, diesel and automotiveLPG in 150 country towns across all States andTerritories were collected on a weekly basis.Around 1500 retail sites were covered, reflectingabout 70 per cent of the rural population inAustralia.

The Commission continued its monitoring ofunleaded petrol prices in the five largest capitalcities (covering around 2500 retail sites) andexpanded its coverage to include Darwin,Canberra and Hobart.

With the implementation of the GST on 1 July2000 there were concerns that petrol pricesmay increase as a result of the New Tax System.The Commission used an indicative pricingmodel to assess prices before and after theintroduction of the GST.

Monitoring outcome

The Commission’s monitoring of unleaded petrolprices from July 2000 to June 2001 indicatedthat average retail prices in metropolitan andcountry areas were quite volatile. This wasmainly because of movements in theinternational product price (the spot pricefor Singapore Mogas 95 unleaded) and theAustralian/US dollar exchange rate. Theinternational average monthly product pricerose from $US36.0 per barrel in July 2000 to$US37.7 in August 2000. It declined over thenext four months to $US29.8 in December2000 before rising again to $US32.9 in May2001. The price fell substantially in June 2001to $US26.8. Between July 2000 and June 2001,the monthly average Australian/US dollarexchange rate declined by over seven cents.

In line with these price movements, the averagemonthly five capital city unleaded petrol pricerose from 88.1 cents per litre (cpl) in July 2000to a peak of 93.6 cpl in September 2000.Prices gradually declined over the next fourmonths to a low of 84.4 cpl in January 2001.They then rose again over the next four monthsto the year’s peak of 94.7 cpl in May. In June2001 the price fell to 86.7 cpl.

Petrol price movements in the 150 countrytowns monitored by the Commission showed asimilar pattern. The average price across these


towns increased from 96.3 cpl in July 2000 to102.6 cpl in September 2000. It then graduallydeclined over the next four months to a low of94.8 cpl in January 2001. The average pricerose again over the next four months to theyear’s peak of 103.6 cpl in May 2001. In June2001 the price fell to 99.0 cpl.

The differential in average petrol pricesbetween the five major metropolitan cities andcountry areas was 7.8 cpl in June 2000. In thesubsequent 12 months the differential fluctuatedbut the average over the year to June 2001was 7.2 cpl — that is, 0.6 cpl lower than inJune 2000.

The Commission reported on the movementin fuel prices in the September quarter 2000.The report outlined the determinants of fuelprices in Australia and discussed the factorsthat influenced the increases. A combination offactors (international prices, the Australian/USdollar exchange rate, Federal and State excisesand taxes, and discounting in the market) affectfuel prices. The report concluded that actual fuelprices had not increased as much as expected onthe basis of movements in underlying factors.

In 2000–01 the Commission received over6000 inquiries and complaints relating to fuelpricing issues. These were examined and follow-up action taken where appropriate.

Fuel sales grant scheme

The Government introduced the fuel sales grantscheme from 1 July 2000. Under this scheme, 1 or 2 cents per litre is paid to retailers of petroland diesel in non-metropolitan and remoteareas. The purpose of the scheme was that thecountry/city differential should not increase asa result of the introduction of the New TaxSystem. The Commission monitors the passingon of the grant and ensures compliance underthe price exploitation provisions of the Act.

In July 2000 the Commission wrote toapproximately 3700 retail outlet owners inregional and remote Australia (covering around10 000 retail sites) advising them of theinformation that might be required during thetransition period to the end of June 2002. The Commission asked about 2200 of theseowners to send price information for June andJuly for all their retail sites. Some of the

information gathered as part of this excisecontributed to the Commission’s investigationinto the operation of the fuel sales grantscheme.

March 2001 excise reduction

Excise on unleaded petrol and diesel increasedby 1.52 cpl on 1 February 2001. This was partof the twice-yearly indexation of excise rates.On 1 March 2001 the Government announcedthat it would reduce the excise on petrol anddiesel by 1.5 cpl from 2 March 2001.Incorporating the effect of the GST, thisreduction in excise should have led to areduction in retail prices of 1.65 cpl. TheCommission was given the responsibility ofmonitoring the passing on to consumers of theexcise reduction. The Commission thereforeincreased the frequency of its fuel pricemonitoring during this period.

It found that on 2 March 2001, petrol prices fellby an average of 1.7 cpl in the five major capitalcities. In country areas prices fell by an averageof 1.8 cpl in the two weeks after the excisereduction. The Commission is continuing toexamine a number of complaints that specificservice stations failed to pass on the excisereduction.


Inquiry into reducing fuel pricevariabil ity

In early March 2001 the Government asked theCommission to examine the feasibility of placinglimitations on petrol and diesel price fluctuationsthroughout Australia. The Commission heldpreliminary discussions on this issue withindustry participants and other interestedparties and released a discussion paper on14 June 2001.

It noted that retail petrol price volatility isgenerally confined to the major capital cities andsome strategically located rural towns on majorhighways. Retail diesel prices in metropolitanareas do not display short-term volatility.The paper identified possible causes of the localprice cycles, such as the characteristics of thedemand for petrol, competition for market share,excess refinery capacity, oil company pricesupport for their franchisees, short-term excessproduct at the refineries, changes in demandand the current regulatory structure.

The paper put forward possible options tolimit price fluctuations, including educatingconsumers about the price cycle, to allow pricesto be changed only once in 24 hours, limitingprice increases to only a certain amount eachday, retail price regulation, reintroducingwholesale price regulation, and terminal gatepricing accompanied by open access and noprice discounting. The Commission invitedsubmissions and will prepare a final report forthe Government.

Milk monitoringIn April 2000 the Commonwealth Governmentdirected the Commission to monitor prices,costs and profits of businesses dealing withmarket milk product sales. The Commissionwas to determine whether the falls in farm-gateprices for raw milk brought about byderegulation were being passed on toconsumers.

Data was collected from all 27 processingcompanies that produce leviable milk productsalthough most milk processed in Australia is bythe three majors — National Foods, DairyFarmers and Pauls/Parmalet. Retail data wascollected from the major supermarket chains,petrol convenience stores and other retailoutlets, while the Commission’s GST division

surveyed retail prices. Additional survey work wasalso commissioned.

The monitoring covered the period beforederegulation (April–July) and for a further sixmonths. The report was released on 9 April2001.

Milk monitoring report f indings

Price changes

Australian supermarket prices for plain, reducedfat and low-fat milk decreased by an average of22 cents, 6 cents and 9 cents per litrerespectively across all pack sizes and brandsfrom the June quarter to the December 2000quarter. These products make up 81 per cent oftotal milk sold in supermarkets. However, pricesfor UHT, flavoured and specialty milk increasedan average of 10 cents, 14 cents and 3 cents perlitre respectively over the same period. Across allcategories of milk, the average price decrease inthe six months to December 2000 was 12 centsper litre.

Price reductions for milk were greatest inVictoria, where plain milk fell by an average of 32cents per litre in supermarkets. Price decreasesin States which previously had low retail pricesfor milk, such as New South Wales, declined toa lesser extent.

In convenience stores, the price per litre of milkremained relatively stable.

Impact on margins and sales revenues

From the June quarter to December 2000quarter the gross margin on aggregate milk salesin supermarkets declined by 19 per cent withretail prices falling at a greater rate thanwholesale prices. Despite sales volumesincreasing by around 6 per cent, substantialreductions in per litre revenue led to an overalldecrease in aggregate revenue derived fromsupermarket milk sales during this period.

In convenience stores, sales volumes declined byaround 24 per cent in the September quarter.With the per litre cost of milk remainingrelatively constant in convenience stores,aggregate revenue decreased by around 24 percent as consumers sought an increasing volumeof their milk requirements from supermarkets.Although prices and margins in conveniencestores were largely unchanged when averaged


across all milk categories following dairyderegulation, reduced sales volumes resulted inlower overall revenue.

The average net profit margins of Australian milkprocessors decreased by around 12 and 18 percent respectively on a per litre basis for theSeptember and December 2000 quartersrelative to the June 2000 quarter. As the totalvolume of milk sold in Australia was relativelyconstant over this period, the overall profitabilityof milk processors decreased followingderegulation. Although price discountingof branded milk products fell away in theDecember 2000 quarter, net profit marginsremained considerably lower than beforederegulation.

The demand response to price changes

Demand appeared to respond to the pricechanges and subsequently milk sales shifted tothe supermarket sector, towards plain milk (awayfrom UHT milk), generic products (away frombranded products) and the largest pack size (3-litre) where discounting has been greatest.Of these shifts in demand, the movement insupermarket sales away from branded plain milkto generic-labelled plain milk was the mostdramatic.

Although average milk prices fell in all Statesfollowing the removal of farmgate price controls,some milk prices increased in the AustralianCapital Territory and in the Northern Territory.This was because the additional costs of thedairy industry adjustment levy could not beoffset by lower farmgate prices for raw milk.Prices for milk sold in traditional corner storeswere found to be highest in metropolitan areasand small towns. This suggests that consumerswho buy their milk from non-supermarket outletsin metropolitan cities may be less price sensitivethan regional and rural milk consumers andmore willing to pay a premium for convenience.For small towns, higher distribution costs anda lack of direct competition from supermarketsare likely to contribute to higher milk prices.As expected, milk prices in remote localitiestended to be more expensive than milk sold inmore accessible areas due to higher transportcosts.

Following deregulation the total volume of milksold in Australia was largely unchanged.

However the total value of milk sales contractedwhen measured across all categories, pack sizesand brands. In supermarkets, the increasedrevenue from a higher turnover because ofdiscounting was insufficient to offset revenuelosses from price reductions. In non-supermarketoutlets, average milk prices were reduced to alesser extent across all milk products but salesvolumes declined as consumers purchased moremilk from supermarkets.

Since deregulation, most Australians have accessto lower-priced milk because of standard pricedgeneric-labelled milk in the major supermarketchains.

Waterfront



Part XIn October 2000 the Commission reported tothe Minister of Transport on the results of itsinvestigation into a liner shipping agreementregistered under Part X of the Trade PracticesAct. The Commission recommended againstderegistration of the agreement.


In November 2000 and March 2001 certainamendments to Part X became effective. The keychanges from the Commission’s perspectivewere:

• the power to investigate agreements in thecontext of providing liner shipping services;

• the power to investigate agreements whenmember lines unreasonably refuse anotherline entry to the agreement; and

• the extension of coverage of Part X toinbound trades.

The amendments give the Commission newpowers to initiate an investigation without aministerial directive or a complaint but areconditional upon the existence of the specified‘exceptional circumstances’.

Container stevedore monitoringOn 20 January 1999 the Federal Treasurerdirected the Commission under the PricesSurveillance Act to monitor prices, costs andprofits of container stevedoring operators in theports of Adelaide, Brisbane, Burnie, Fremantle,Melbourne and Sydney. The aim is to inform thecommunity about the progress of some aspectsof waterfront reform at the major containerterminals, as well as the absorption of thestevedoring levy.

The Commission released its second containerstevedoring monitoring report in December2000. It examines trends in prices, costs andprofits of the three major stevedoringcompanies, P&O Ports Ltd, Patrick the AustralianStevedore, and Sea-Land (Australia) TerminalsLtd for the two periods, July to December 1999and January to June 2000. The average industrywide cost per twenty-foot equivalent unit (TEU)for the five months February to June 1999 was$161, which fell to $148 for the first six monthsto June 2000. Average unit revenue also fellfrom $182 per TEU in the five months to June1999 to $173 in the first six months of 2000.Significant productivity improvements were alsorecorded. In long term trends, industry wideaverage revenue (indicative prices) and averagecosts are significantly lower than 1995, whenthe previous stevedoring monitoring programconducted by the Prices Surveillance Authorityended.

During 1999–2000, P&O Ports Ltd undertooka major restructuring which resulted in a 34 percent reduction in its permanent workforce.This followed the action undertaken by itscompetitor Patrick to reduce its workforce in1998.


On the evidence available to the Commissionthe stevedore levy was not passed on as highercharges. Rather the cost of the levy appears tobe offset against other cost reductions made byP&O Ports and Patrick.

The next monitoring report is due in October2001. The stevedores have now submitted price,cost and profit data for the six-month periodJuly–December 2000 to the Commission.

Prices oversight of harbour towage

Adsteam Marine Ltd acquisit ion of Howard Smith Towage

Before 1 May 2001 Adsteam Marine Ltd andHoward Smith Towage were both declaredcompanies under the Prices Surveillance Act.

During the year, Adsteam Marine Ltd announcedthat it had entered into an agreement to buy theAustralian and United Kingdom harbour towageand related marine businesses of Howard SmithTowage for $500 million.

This makes Adsteam Marine Ltd the soleprovider of towage services at the followingports in Australia: Port Jackson, Port Botany, Port Adelaide and the ports of Newcastle,Fremantle, Melbourne and Brisbane.

Adsteam Marine Ltd remains a declared companyunder the Prices Surveillance Act.

International forums


• Actively participated in the development ofeffective competition and consumer protectionlaws internationally.

The Commission is increasingly cooperatingwith its international counterpart agencieson competition, consumer protection andregulatory matters to effectively enforce lawsin Australia and overseas.

OECD

Competition

The OECD Council adopted the CompetitionLaw and Policy Committee’s ‘RecommendationConcerning Structural Separation in Regulated

Industries’ on 26 April 2001. The councilendorsed the recommendation that governmentsconsider structural separation of regulatedindustries, i.e. separation of the ownership ofthe monopoly and competitive parts of suchindustries, particularly during the process ofprivatisation or liberalisation. Without suchseparation, strong incentives to resist thegrowth of competition remain.

APEC

Competition

This year has also seen the implementation ofnew joint initiatives to draw together regulatoryreform work being done in the APEC and OECDforums. This work, in the form of a series ofworkshops and seminars, will continue into2002.

From 13–15 March 2001 Mr Paul Bilyk, aDirector in the Commission’s Electricity Unit,participated in the fifth APEC Partners forProgress training program held in Thailand.Mr Bilyk acted as the moderator for one programstream on the promotion of competition inregulated sectors and state enterprises.

Energy

Over 17–18 May 2001 Mr Mike Rawstron,General Manager of the Commission’s ElectricityUnit, participated in the 9th meeting of theAPEC Energy Regulator’s Forum (ERF). The ERF,which is a component of the Energy WorkingGroup of APEC, provides an opportunity forAPEC member economies to discuss moredetailed issues about reforms to the energysector, as well as emerging regulatory and marketdevelopment matters. The focus of the latestmeeting was the fall out from the Californianenergy crisis, as well as presentations on networkpricing and country reports. Australia madepresentations to the group on congestionpricing and on the design of the Australianelectricity market.




To maintain high levels of managementefficiency and cost-effective resource utilisationat both national and regional office levels.

IntroductionThe Commission’s management is centrallycoordinated through its Corporate ManagementBranch. The branch comprises Human ResourceManagement and Corporate Projects; Financeand Services; IT Contract and Services Unit;Information Services; Publishing Unit; CorporateServices Melbourne; and Library.

Functional details of the Commission (a statement required under s. 8 of the Freedomof Information Act 1982) are set out in appendixfour. The organisation chart as at 30 June 2001is in the Corporate overview at the beginning ofthis report (p. 10).

Major matters undertaken during 2000–01included:

• an output pricing and funding review with theDepartment of Finance and Administration;

• a new corporate plan, Corporate Plan andPriorities 2001–02;

• implementation of an integrated costing andaccounting system;

• a national first-point-of-contact centre, ACCC infocentre, established;

• relocation of the Brisbane and Sydney officesto new premises; and

Corporategovernance andmanagement

C h a p t e r

7


• a graduate intake of 30, representing about7 per cent of total staff.

Corporate governanceDecision-making structureThe Commission held 47 formal meetings during2000–01. Most were held in the national officein Canberra but it is the Commission’s policy tomeet in other capitals when this is compatiblewith other commitments or offers opportunitiesfor local contact.

During 2000–01 the Commission considered379 formal papers dealing with matters underinvestigation, litigation, mergers, access matters,adjudication decisions, submissions to inquiries,and compliance and education strategies.It also considered many informal submissions.

Committees

The Commission has seven subject matter andfunction committees to streamline decision-making (see appendix 6).

Telecommunications

The Telecommunications Committeeoversees the Commission’s functions intelecommunications, including matters arisingunder Parts XIB and XIC and authorisations.It coordinates with the Enforcement Committeeon issuing competition notices. Committeedecisions are referred to the full Commissionfor formal decision. The committee meets asrequired and comprises the Chairperson, DeputyChairperson, and Commissioners Shogren,Jones and Martin. Relevant ex-officio associatecommissioners are included. This committee sitsas a division of the Commission from time totime.

Mergers

The Mergers Committee meets weekly andconsiders most merger matters, reporting itsdecisions to the Commission. Major mattersare referred to the full Commission for furtherconsideration. The committee comprises theChairperson and Commissioner Jones.

Enforcement

The Enforcement Committee meets weeklyto oversee the enforcement program.Its recommendations are referred to theCommission for formal decision. It comprisesthe Deputy Chairperson and CommissionersBhojani, Jones, Martin and Shogren.

Energy

The Energy Committee is responsible for theCommission’s functions in the electricity and gassectors. The committee meets as required andcomprises the Chairperson, Deputy Chairperson,Commissioners Cousins and Shogren, andrelevant ex-officio associate commissioners.

Transport

The Transport Panel meets as necessaryto oversee transport issues. It comprisesCommissioners Cousins, Jones, Martin andShogren.

GST

The GST Committee meets as necessary tooversee the Commission’s GST role. It comprisesthe Chairperson, Deputy Chairperson, full-timecommissioners and Associate CommissionerKing.

Corporate governance

The Corporate Governance Committee meetsmonthly and comprises the Chairperson, DeputyChairperson, full-time commissioners, the ChiefExecutive Officer and senior staff.

Output pricing andfunding reviewThe Department of Finance and Administrationconducted an output pricing and fundingreview of the Commission. It found that theCommission was under-resourced and theGovernment agreed to increase theCommission’s funding.

While the Commission had received funding forspecific roles and tasks, a comprehensive reviewof its funding base had not been conductedsince it was established in 1995. In themeantime, the Commission had faced a majorincrease in its regulatory activities, increased


complexity of markets, technological changessuch as electronic commerce, and rapidlyincreasing international challenges includingthe impact of globalisation. The Commission’sworkload continues to increase in both volumeand complexity.

The review involved an evaluation of theCommission’s strategic operating environment,its costing systems, interviews with variousstakeholders and extensive benchmarkingof some strategic functions against otherAustralian and international agencies.

The four elements of the funding increase are:

• $5.6 million, for activities intelecommunications, gas and small businessthat would have lapsed, has been extended;

• $15.8 million to enable the Commission tomaintain its current workload, and to meetemerging priorities such as e-commerce andrural and regional issues;

• $20 million litigation reserve fund, to assistthe Commission to meet unusual litigationcosts. In the first year, $10 million will beprovided for this fund, and a further$1 million in each subsequent year untilthe reserve builds to $20 million; and

• a $3 million loan has been convertedto equity.

The Commission will improve its costing systemsand report against agreed key performanceindicators.

Senior managementconferenceIn April 2001 the Commission held a conferencefor senior management in South Australia. It wasattended by commissioners, senior executiveservice staff, regional directors, other staff andguest speakers. Senior representatives of theCanadian Competition Bureau attended.

The conference focused on the practical,strategic and management issues facing theorganisation, especially the new corporate plan,and the planning and budgeting cycle.

Financial managementFunding of $75.627 million was provided in the2000–01 budget. This included funding for:

• tax reform price monitoring;

• legal services;

• airport regulation; and

• additional functions and powers under theTelecommunications Legislation AmendmentAct 1999.

Tax reform price monitoringThe Commission received $24.979 million foractivities to ensure compliance with the priceexploitation provisions of the Trade PracticesAct. With it the Commission designed anddelivered a communication and informationstrategy, monitored retail prices, respondedto consumer and business inquiries through atelephone hotline, and took enforcement action.

Legal servicesThe Commission received an additional$10 million to meet increased legal costs andthereby maintain compliance and enforcementactivity.

Airport regulationThe Commission received $0.9 million toimprove airport access arrangements, assesscompliance with airport price caps includingpass through of necessary new investment, andmonitor prices of aeronautical-related servicesat airports.

Additional functions and powersunder the TelecommunicationsLegislation AmendmentAct 1999The Commission received an extra $0.9 millionfor telecommunication activities to administera number of powers in relation to competitionnotices in Part XIB of the Trade Practices Act,and the processing of arbitration and associatedlegal issues under Part XIC.


RevenueDuring the year the Commission collected thefollowing revenue:

• miscellaneous consolidated revenue (fines andcosts, authorisations and notification fees)— $43.2 million

• section 31 receipts (miscellaneous income)— $1.3 million

People managementStaffing levelsThe Commission’s budgeted staffing levelfor 2000–01 was 465 (up from 372 in1999–2000), including six full-time holders ofpublic office (Commission members). In additionthere are 14 associate members, nine of whomare ex-officio, as economic regulators from otherCommonwealth or State and Territory bodies.The average level of staff employed duringthe year was 438.1 (up from 381.71 in1999–2000) while the actual number ofemployees (including part-time employees) at30 June 2001 was 482. See p. 142 for staffingoverview.

The increase in average staffing levels arose fromthe Commission’s role in the introduction of theNew Tax System and the establishment of theACCC infocentre.

Of the 482 employees employed at 30 June2001, 43 were engaged in work relating to theCommission’s GST function (down from 135 at30 June 2000). This is mainly because feweremployees were employed in the GST Price Linein the second half of the year.

Training and developmentSpending on training and development in2000–01 totalled $986 513 comprising salariesof staff on development activities ($366 643),salaries of the learning and development unitemployees ($143 606), course and conferencefees and study assistance ($427 888) andincidentals ($48 376). This represents acommitment of 3.5 per cent of the annualpayroll to staff development.

In addition, on-the-job training is a major featureof the Commission’s learning program. Regularvideoconference seminars and various regionaland national office seminar sessions oncontemporary issues ensured sharing ofknowledge among all staff.

Four investigation techniques courses were runduring the year, with 92 participants attending.Eleven participants were from overseascompetition authorities and five were fromState government agencies.

The following table shows the units of trainingcourses/seminars in each category listed in thelast two financial years.

Units of training

Type 1999–2000 2000–2001

Economic education 150 106

Law education 236 161

IT skills 190 114

Operational skills 511 466

Management development 50 48

Personal development 50 45

SES development 45 25

Table 7.1. Training provided in 1999–2000 and 2000–01


Ms Margaret McPherson, an investigator inthe Fair Trading Division of the New ZealandCommerce Commission (NZCC), started workwith the Commission’s Consumer ProtectionUnit in February 2001, on exchange from theChristchurch office of the NZCC for a periodof six months.

Staff secondments

Mr Osmond Borthwick of the Commission’sSydney office will return to Australia in October2001 after working with the New ZealandCommerce Commission. Mr Borthwickparticipated in the regular exchange programfor a period of six months in 1999 and thenstayed with the NZCC on secondment.

In January 2001 Mr Kien Choong of theCommission’s Melbourne office completeda 12-month secondment to the MalaysianCommunications and Multimedia Commission.Mr Choong’s main area of focus during thesecondment was access matters in thetelecommunications industry.

Mr Jung-won Song of the Korean Fair TradeCommission completed a two-year secondmentto the Commission in June 2001. Mr Songspent time studying the operations of theCommission’s Consumer Protection, Mergersand Electricity Units. He also spent some timestudying trade practices law at the AustralianNational University.

Mr Ron Cameron, a Director in the Commission’sTelecommunications Unit, continues to workwith the Hong Kong Consumer Council as theirChief Trade Practices Officer, after taking upthe position in October 1998. Mr Cameron willreturn to the Commission in October 2002.

Mr Shane Adams from the Commission’sSydney office took up a 12-month secondmentin August 2000 with the UK Office ofTelecommunications (OFTEL) in London.

International Internship Program

In January 2001 the Commission started thesecond year of its International InternshipProgram (IIP). The 2000 program involved oneintern from the Department of Trade, Commerceand Industry in Samoa. The 2001 programinvolves two interns, the first from the Zambian

The Commission believes there is significantvalue in its staff increasing their professionalskills and academic learning. Employees areeligible for tertiary study assistance in the formof study leave and partial reimbursement offees, subject to certain criteria and conditions.During the year 55 staff members participatedin the Commission’s study assistance scheme,mainly for postgraduate studies in economics,law and business.

Graduate programThe Commission recruited 29 graduates and twointernational interns at the beginning of 2001,placing them throughout the organisation.Graduates complete an intensive one-weekorientation program, followed by on-the-jobtraining and assessment, and rotation to threedifferent work areas during the 10 monthstraining.

This year’s graduate recruitment was the firstto be managed entirely by the Commission,Recruitment Services Australia having ceasedoperations. The Commission received about 600applications for the 30 available positions, andthe quality of applicants was particularly high.A recruitment and selection strategy has beendeveloped to ensure the quality of graduaterecruits is maintained for the 2002 program.

International staff developmentprograms

Staff exchange programs

Mr Konrad Chmielewski, a Director in theCommission’s Small Business Unit in Melbourne,started on a 12-month exchange in November2000 with Mr Larry Bryenton, a seniorcommerce officer from the CanadianCompetition Bureau, who is working in theCommission’s Victorian regional office.

Mr Cyril Loa from the Commission’s Sydneyoffice took part in the third staff exchangewith the Taiwan Fair Trade Commission (TFTC).Mr Loa spent three months in Taipei in early2001. In recognition of the value of theexchange, Ms Rita Wang of the TFTC Legal Unit,took a six-month placement in the Commission’sCanberra office in March. Ms Wang spentthree months respectively in the Commission’sEnforcement Division and the Legal Unit.


Competition Commission and the second fromthe Consumer Affairs Council of Papua NewGuinea. The IIP program is a strategic part ofthe Commission’s broader technical assistanceand capacity building regime.

The goals of the internship program are:

• to contribute to the development ofcompetition, consumer protection and utilityregulation policies and initiatives by providinginterested, suitably qualified overseas partieswith the opportunity to spend one yearworking at the Commission, a recognisedworld leading competition and consumerprotection agency;

• to enhance the Commission’s links with itsinternational counterpart agencies;

• to equip participants with the knowledgeof the relevant legislation necessary forthe functioning of the Commission, anunderstanding of competition, consumerprotection, pricing and utility regulationissues, an awareness of the political,commercial and social environments andthe management framework in which theCommission operates; and

• for those parties to contribute to theoperation of the Commission by completingwork placements in three separate operationalunits of the organisation.

Workplace relationsThe Commission employs non-SES staff underthe ACCC Certified Agreement 2000–01.It provides an 8 per cent pay increase over23 months, undertakes to explore variable payand remuneration strategies in the future, andexpresses a commitment to redressingunsatisfactory work performance.

The Commission’s formal employee consultativebody is the Workplace Relations ConsultativeCommittee with four staff representatives(elected by staff), two union representativesand one from management. It meets quarterlyand will be consulted for the next workplaceagreement.

During the year Australian WorkplaceAgreements (AWAs) were offered to SESemployees, GST public inquiry office employeesand four other non-SES employees. Fifty-three

AWAs were approved by the EmploymentAdvocate during the year.

Workplace diversity

Equity and Diversity Plan 2001–03

In 2001 the Commission commenced acomplete review of its existing WorkplaceDiversity Plan 1998–2001, in accordance withthe Public Service Act 1999. The review beganwith a staff survey seeking comments on theexisting plan. The ACCC Equity and DiversityPlan 2001–03 is expected to be released inAugust 2001, incorporating new legislativerequirements, new initiatives by the Commissionand findings from a staff survey.

Commitment to equity and diversity

The Commission has contact officers throughoutthe organisation who distribute equity anddiversity information, and offer support to staff.National and State office equity and diversityofficers have been appointed to:

• support and promote the workplace diversityplan;

• raise awareness of the principles of the plan;and

• help prevent and resolve workplaceharassment.

Contact officers are encouraged to attendregular training courses to assist in their role.

Awareness of the principles is maintained by:

• presenting the Commission’s workplacediversity program to graduates during theirorientation week;

• circulating information on equity and diversityissues through the internal staff bulletin.

New policies and initiatives

Policies and initiatives that are being developedor reviewed to support the plan include:

• internal webpage dedicated to equity anddiversity issues;

• information brochures on workplaceharassment and equity and diversity principles;

• review of sexual harassment and harassmentpolicies; and

• policies to support flexible workingarrangements.


Date APS equiv. Total NESB PWD Women A&TSIclassification

30 June 1999 APS 1 & 2 54 5 0 42 115.0% 1.4% 11.7% 0.2%

30 June 2000 APS 1 & 2 52 6 0 34 110.0% 1.2% 6.6% 0.2%

30 June 2001 APS 1 & 2 53 11 1 35 110.2% 2.1% 0.2% 6.8% 0.2%

30 June 1999 APS 3 & 4 58 9 0 37 016.2% 2.5% 10.3%

30 June 2000 APS 3 & 4 156 10 2 94 130.1% 1.9% 0.4% 18.1% 0.2%

30 June 2001 APS 3 & 4 106 14 3 68 120.5% 2.7% 0.6% 13.1% 0.2%

30 June 1999 APS 5 & 6 116 9 0 60 032.3% 2.5% 16.6%

30 June 2000 APS 5 & 6 145 9 0 82 028.0% 1.7% 15.8%

30 June 2001 APS 5 & 6 148 16 2 82 228.6% 3.1% 0.4% 15.8% 0.4%

30 June 1999 EL 1 & 2 110 10 0 27 030.6% 2.8% 7.5%

30 June 2000 EL 1 & 2 142 11 0 41 027.4% 2.1% 7.9%

30 June 2001 EL 1 & 2 153 17 4 47 029.5% 3.3% 0.8% 9.3%

30 June 1999 SES & POH 21 2 0 4 05.8% 0.6% 1.1%

30 June 2000 SES & POH 23 4 0 5 04.4% 0.8% 1.0%

30 June 2001 SES & POH 22 1 0 5 04.2% 0.2% 0.8%

30 June 1999 Total 359 35 0 170 17.7% 47.4% 0.3%

30 June 2000 Total 518 40 2 256 29.7% 0.4% 49.4% 0.4%

30 June 2001 Total 482 59 10 237 411.4% 1.9% 45.8% 0.8%

NESB: Non-English-speaking background. PWD: People with a disability. A&TSI: Aboriginal and Torres Strait Islanders.

APS: Australian Public Servant. EL: Executive Level. SES: Senior Executive Service. POH: Public Office Holder.

Note: As the target groups are not mutually exclusive there may be some double counting. The statistics cover only those employeeswho nominate themselves to be counted in each group.

Table 7.2. Comparative representation of target groups within the classification level


The Advisings and Policy Unit provides legaladvice on a range of general non-regulatorymatters, and coordinates the use of legalresources across the ACCC, including the useof ACCC Legal Panel firms. It provides much ofthe legal advice from its own resources and alsohas responsibility for administrative law issuesincluding FOI, and the coordinating of legalpolicy.

The Litigation Unit manages and provides legaladvice on litigation matters, primarily in theenforcement area — and particularly whennew or complex issues are involved. It alsosettles the more complex notices and otherlegal instruments of an enforcement nature.The team is comprised of lawyers and paralegalson retainer from the Australian GovernmentSolicitor.

Attached to the Legal Group is the GeneralCounsel, who provides specialist legal adviceon complex legal issues and takes a role in thestrategic oversight of major litigation involvingthe ACCC.

A panel of legal firms conduct litigation onbehalf of the ACCC. The following firms arecurrently appointed to the ACCC Legal Panel— Corrs Chambers Westgarth, Phillips Fox,Deacons, Slater & Gordon and the AustralianGovernment Solicitor. The firms are operatingunder deeds of standing offer for a period oftwo years which expire on 20 September 2001.Tenders have been called for the establishmentof the new Legal Panel and those tenders are stillbeing considered as at the date of this report.

Information andcommunications technologyand serviceInformation technology andtelecommunicationsOn 1 July 1999 the Commission, as a member ofGroup 5 IT&T Market Testing and OutsourcingGroup, contracted the management of itsinformation technology and telecommunicationsinfrastructure services to Advantra in accordancewith the Commonwealth Government’s IToutsourcing initiative. Group 5 includesDepartment of the Prime Minister and Cabinet;Department of Communications, Information

Occupational health and safetyThe Commission has an occupational health andsafety policy and agreement, and has appointedhealth and safety representatives for alldesignated work groups. Other policy andguidelines are established for all health andsafety matters relevant to the work of staff.

During the year information sessions on safework practices and ergonomic inspections wereheld in Canberra, Brisbane and Perth. As well asregular safe work practice/ergonomic inspectionsin the Canberra office an occupational therapistassisted with the establishment of the ACCCinfocentre. A pilot wellness program was run inthe Perth office and included an employeehealth survey and health information sessionsby medical professionals. The Commission madeinfluenza vaccinations available to all staff.

The Commission has a national self-referralassistance program for staff and their families.During the year 77 consultations were providedto 23 staff and four family members.

Eight workers’ compensation claims were lodged:one for occupational overuse injuries; two as aresult of motor vehicle accidents; two for injuredlimbs; one for a head injury; one for awound/lacerations; and one for stress.

The legal groupThe Legal Group is the Commission’s in-houselegal team. It is responsible for the provisionof legal and legal policy advice and thecoordination of Commission legal resourcesgenerally. The group consists of threesubstantive units. Apart from elements of theRegulatory Affairs Legal Unit, who are based inMelbourne, the majority of Legal Group staff arebased in Canberra.

The Regulatory Affairs Legal Unit providesadvice on legal issues arising under Parts IIIA,X, XIB and XIC of the Trade Practices Act, thePrices Surveillance Act and a number of otherenactments and codes (State and Federal) which,in aggregate, represent the ACCC’s regulatoryfunctions. The unit also manages tribunal andother litigation matters arising out of theexercise of those regulatory functions.


Technology and the Arts; Department ofIndustry Science and Resources; andDepartment of Transport and Regional Services.

The second year of the Commission’s five-yearIT outsourcing contract with Advantra waslargely devoted to assessing performance levelsand refining service delivery processes. Usersatisfaction has gradually improved over the yearand is now approaching pre-outsourcing levels.With the continuing refinement of processes andmaintenance of client service, improvements inservice delivery are likely to continue.

As a member of Group 5 the Commission wasinvolved in the IT audit and review by ANAOand Richard Humphry, respectively.

The more significant IT-related activities duringthe year included:

• relocation/refurbishment of the Brisbane,Sydney, Darwin and Perth offices, withtechnological changes implementedsatisfactorily and minimal disruption to staff;

• replacement of over 200 aging PCs withhigher performing Pentium-based systems;

• progressive replacement of printers andpurchase of additional scanners for theexpanded use of the TRIM application;

• doubling of the Wide Area Network carryingcapacity to all State offices which improvedthe performance of business applications inregional offices; and

• migrating the Internet link to a high-speedfibre optic connection.

Advantra initiated infrastructure changes for aconsolidated application server environment(CASE). The first applications in this newenvironment were our development server andFinance 1 Server. The migration of our businessapplications to CASE should improve support,performance, stability and expandability.

Internet communicationsOn 19 May 2001 the Commission renewed itscontract for Internet services with SGE Pty Ltd(a subsidiary of 90East Pty Ltd) for three yearsafter a restricted tendering process as a memberof HOCOLEA. This link provides encrypted andsecure email communications betweenHOCOLEA agencies to the highly protectedlevel. It also offers desktop access to the

Internet while protecting the internal networkfrom unauthorised access.

Database developmentDatabase development during the year focusedon supporting the Commission’s GST role.The corporate systems were enhanced to caterfor the extra workload and small databaseswere developed to support investigations andto promote communications with public interestgroups.

All key business systems were upgraded duringthe year. These include Aurion, Finance1, TRIM,Pinnacle and Horizon. The MARS and PRISMapplication systems were upgraded to supportthe changing business needs. A system tomonitor FBT payments was implemented,and several ad hoc systems to support theCommission’s investigative work were developed.

Work began on an integrated mailing list systemto replace a variety of small ad hoc systems usedthroughout the Commission.

Videoconference equipmentAll the Commission’s offices except Tamworthhave videoconference systems. Canberra,Melbourne and Sydney have multiple systems.Videoconferencing has become an importantcommunication tool in the Commission.

Information managementand servicesEstablishment of InformationServices SectionAn Information Services section was createdduring the year to ensure the Commission’sinformation resources are properly managed,and the opportunities provided by technologyare fully exploited. This will improve access,availability and efficiency in the Commission’soperations, to related agencies and to thepublic.

Information and documents in electronic form,available through the Internet and Intranet,will increasingly become the backbone of theCommission’s information, process and workflowfor all its functions. This is a primaryresponsibility of the Information ServicesSection.


Redevelopment of the Internetand IntranetThis project began in the previous financial year.All user and technical reviews were completedin preparation for the tendering process.The Intranet is becoming the ‘desktop’ for staffto take advantage of the seamless workflow,information sharing, online discussion and theability to manage their own sites. The FederalGovernment’s new Government Onlinelegislation has imposed additional functionalityand performance requirements for Governmentsites. This project’s final tendering will becompleted by 1 November 2001.

Records managementThe records management team is successfullyusing the TRIM software to electronically storeall Commission files, correspondence and publicregisters. The TRIM system enables staff to findand view all logged documents from their PCs,as well as log electronic documents includingemails.

A training program has educated users andregional office staff in the use of TRIM andthat program is ongoing. The TRIM technologymeans staff can take personal responsibility formanaging Commission records.

About 44 800 documents were processed andentered into TRIM (25 per cent increase overlast year) and 7136 new files or parts created(19 per cent increase). About 4700 files weresentenced.

Public registersThe Commission is required to create andmaintain several public registers under the TradePractices Act 1974 and the Prices SurveillanceAct 1983.

The Commission also maintains voluntary publicregisters because it believes the informationthey contain should be available to the public.The most recent voluntary register was createdas a result of a delegation under the ASIC Act1989 — the s. 93AA enforceable undertakingsregister.

Currently the Commission maintains over 20statutory and voluntary public registers, andthrough them the Commission’s decisionmaking is transparent and accountable.

Public register information is publishedon the Commission’s Internet site at<http://www.accc.gov.au>. This site nowcontains indexes of all the public registers, andin some cases electronic images of the relevantdocuments. This information is placed on thewebsite and on hard copy file at the same time.

This method of disseminating information tothe public has proven to be especially effective.The public register site received an average of2100 hits per month during 2000–01 (up from1000 hits a month during 1999–2000).

LibraryThe library provides a research and informationservice to all Commission staff. The serviceis managed from the national office libraryin Canberra. There is also a library in theMelbourne office, and a small collection ofprint materials in the Sydney office.

The library Intranet site includes links to relevantwebsites and information about library services.In accordance with the Commission providinguser-friendly online data access, the libraryhome page has become the principal gateway toexternal information, particularly free and paidaccess websites, of use to Commission staff.Library staff update the site daily.

The library produces several current awarenessservices. A recent initiative was a weekly LibraryServices Alert containing links to online versionsof major current awareness services provided bythe library and other agencies, as well asdevelopments in library services.

Current awareness services include the LibraryInformation Bulletin, an in-house databasecontaining over 3000 abstracts of articlesdealing with trade practices, consumerprotection and competition law and policy,and Current Contents, a weekly compilation ofscanned contents pages of new print journalsreceived.

The library participates in Kinetica and regularlycontributes original cataloguing and holdingsto the National Bibliographic Database.Bibliographic records are downloaded into theHorizon Library Management System (version5.0.3).


Interlibrary loans are obtained for Commissionstaff and supplied to other government librariesand private organisations.

PublicationsThe Commission’s publications — producedin print, electronic and audio visual form— provide guidance to business and thecommunity, disseminate information to them,and inform them about the Commission’sfunctions and objectives.

The Commission’s in-house publishing unitproduces an extensive range of publicationsrelated to the Commission’s work and functions.They include technical reports, parliamentaryreports and papers, guides to legislation,consumer leaflets and magazines, product safetybrochures, small business booklets and videos.

As part of the Commission’s campaign toensure compliance with the price exploitationprovisions of the Trade Practices Act, many GSTpublications were produced over the two yearssince 1999. During the past year 25 wereproduced (hard copy and electronic form),making a total of 61 GST publicationsaltogether. A further series, GST Bulletin(issues 1–27), were produced for onlineconsumption only.

The distribution of the Commission’s regularpublications, ACCC Journal and ACCC update,continues to expand. The Journal, availableby subscription, is distributed to about800 business, professional and consumerorganisations. It is published bi-monthly andoutlines all matters resolved either in the courtsor between the Commission and companies orindividuals concerned. It is also now availableon CD-ROM. ACCC update’s circulation is nowclose to 10 000 copies. It is largely an issues-based publication, the most recent editioncovering consumer issues including the impactof market reform on the consumer. It is availablewithout charge, and is distributed to industryand business organisations, consumer groups,educational institutions, businesses andindividuals.

A full list of publications published this yearis at appendix 7. The highlights of the year’spublishing program include:

• brochures on Internet auctions and Internetadvertising;

• a guide on health treatments and healthfunds;

• videos of the November 2000 and May 2001Competing Fairly Forums;

• a video explaining unconscionable conduct;and

• product safety leaflets covering pedal bicycles,cosmetics, elastic luggage straps, bean bags,exercise cycles, paper patterns and balloonblowing kits.

The Commission also published a reportcommissioned from Karen Yeung, Fellow in Law atOxford University, entitled Public Enforcement ofAustralia’s Competition Law.

GeneralService charterThe Commission continues to review andaugment its systems to improve its servicedelivery. An important initiative during the yearwas the establishment of a national first-point-of-contact centre, the ACCC infocentre.It is accessible to the public from anywherein Australia via a 1300 telephone number andthe Internet.

The Service Charter will be revised during thenext financial year to reflect the Corporate Planand Priorities 2001–02.

The Commission received 12 compliments andseven complaints from the public on its standardof service during the year.

Conflict of interestPublic confidence in the Commission and itsemployees’ integrity is vital. It is important thatthe Commission is, and is seen to be, impartialand unbiased in its work. Each staff memberis asked to complete a conflict of interestself-assessment at least annually.The self-assessment module is designed toensure accountability, while maintaining privacyfor each staff member.


Commonwealth Disability StrategyThe Commission is preparing a plan as requiredby this Commonwealth initiative.

Consultancy services,competitive tendering andcontractingConsultancy servicesThe Commission uses consultants whenspecialist expertise is required for a particulartask and not available within the Commission.The Commission uses:

• for most consultancy contracts in excessof $100 000 — selective tendering; and

• for most consultancy contracts below$100 000 — direct engagement ofrecognised or pre-eminent experts,consultants known to have the requisiteskills, or those that the Commission hassuccessfully used before.

The Commission engaged 115 consultantsduring the year with a value of $9.7 million.

The main categories for which consultants wereengaged were:

• price collections (GST price monitoring role);

• GST public awareness campaign;

• price exploitation hotline;

• information technology;

• expert economic advice on adjudication andmergers;

• regulatory matters;

• internal audit; and

• enforcement work.

A list of consultants paid more than $10 000during the year is on the Commission’s website.

Advertising and market research —Commonwealth Electoral Act 1918The following are amounts of money paid (valueof contracts) to creative advertising agencies,direct mail, media advertising and marketresearch organisations.

Mitchell Media: GST public awareness $2,643,803

Whybin TBWA & Associates: GST public awareness $104,635

Retailers Association of Australia: GST public awareness $6,400

Cultural Partners Australia: GST public awareness $329,334

Yaffa Publishing Group: Country of origin business education $7,417

Furnishing Publications Pty Ltd: Country of origin business education $4,000

AIS Media: Employment, and general business information $168,306

Media Research Group: GST public awareness $32,142

Newsnet: Media releases $112,430

Starcom: Employment advertising $98,827

APN Newspapers: Information for Small Business $1,814

Albany Advertiser Pty Ltd: Information for Small Business $612

Agriculture Publishers Pty Ltd: Information for Small Business $485

Eryl Morgan Publishing Pty Ltd: Information for Small Business $2,750

Nicholas Media Group Pty Ltd: Country of origin business education $2,200

Australasian Textiles Publishers: Country of origin business education $2,600

Intermedia Group Pty Ltd: Country of origin business education $4,400

Advertiser Newspapers Ltd: Information for Small Business $1,358

Vertical Markets: Country of origin business education $3,000

PSMPC: Gazette subscription $8,693


Office accommodationThe Commission maintains 10 offices: inCanberra, each State capital, Tamworth andTownsville.

During the year a number of leases expiredand new arrangements were put in place.

Brisbane office relocated to another floor in thesame building. A new fitout was completed inDecember 2000 and the office relocated toLevel 3 in the AAMI Building at 500 QueenStreet.

Sydney office relocated to Level 7 Angel Place,123 Pitt Street, in June 2001.

Perth office lease was renewed for another threeyears in March 2001, and a refurbishment wasundertaken in June 2001.

Tamworth office lease was renewed for anothertwo years from December 2000.

In Darwin and Hobart, the Commission exercisedoptions to extend current leases.

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Table 7.3. Total staff by gender, classification and location as at 30 June 2001

Classification ACT NSW VIC QLD WA SA TAS TVL TAM NT Total Total

M F M F M F M F M F M F M F M F M F M F M F All

Public Service Act staff

GAPS 4 9 2 3 5 1 2 1 12 15 27

APS 1 2 2 1 1 2 4 6

APS 2 2 5 1 4 1 2 2 2 1 4 16 20

APS 3 4 14 1 1 6 3 1 1 1 1 5 28 33

APS 4 19 23 3 3 3 6 3 5 1 2 2 1 2 33 40 73

APS 5 8 12 5 3 7 14 1 5 2 3 2 2 1 1 1 1 27 41 68

APS 6 11 21 5 5 14 7 3 2 1 1 2 2 3 3 39 41 80

EL 1 19 16 4 3 16 10 1 4 2 1 1 1 1 1 45 35 80

EL 2 30 8 8 2 17 2 1 2 1 1 60 13 73

SES Band 3 1 1 0 1

SES Band 2 2 1 3 0 3

SES Band 1 5 2 2 2 1 1 8 4 12

Total Public Service Act staff 476

Non-Public Service Act staff

Chairman 1 1 0 1

Deputy Chairman 0 0 0

Commissioner 4 1 5 0 5

Total Non-Public Service Act staff 6

Total M/F 112 112 29 23 65 54 10 21 9 10 8 7 7 1 2 2 1 1 2 6 245 237 482

Total 224 52 119 31 19 15 8 4 2 8 482

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Part-time staff as at 30 June 2001

ACT NSW VIC QLD WA SA TAS TAM TVL NT Total

Male 4 1 1 1 1 8

Female 12 7 4 2 3 1 1 30

Total 16 8 5 3 1 3 0 1 1 0 38

Temporary staff as at 30 June 2001

ACT NSW VIC QLD WA SA TAS TAM TVL NT Total

Male 19 1 7 2 29

Female 10 6 6 1 1 1 1 26

Total 29 1 13 8 1 0 0 1 1 1 55

SES staff by gender, location and band as at 30 June 2001

Band Gender Total ACT NSW VIC QLD Gains/Losses Comments

1 Male 10 5 2 2 1

Female 2 1 12 Male 3 2 1

Female 03 Male 1 1

Female 0Total 16 9 2 4 1

Non-Public Service Act staff — total by gender, classification and location as at 30 June 2001

Chairperson Deputy Chairperson Commissioner Total M/F Total by region

ACT Male 1 4 5 5

Female 0

VIC Male 1 1 1

Female 0

Total 1 0 5 6 6


ACCC Annual report 2000-01

Documents