Monday, 27 March 2017
Competition and Consumer Amendment (Misuse of Market Power) Bill 2016; Second Reading
The Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 is as confused and incoherent as the government and the Prime Minister himself. Most of the debate within the chamber today has focused on schedule 1 of the bill, which proposes to amend section 46 of the Competition and Consumer Act to introduce an effects test that looks at whether conduct engaged in by a firm with a substantial degree of market power has the purpose or effect, or is likely to have the purpose or effect, of substantially lessening competition.
I want to focus on schedule 2 of the bill. It has not had a lot of focus in this debate, but it is important, because schedule 2 of the bill goes on to propose the repeal of telecommunication-specific anti-competitive conduct in part XIB of the Competition and Consumer Act—a longstanding and very effective regime, which has ensured a greater degree of competition within this industry. I want to foreshadow now that if the government does not come to its senses and back away from this reckless piece of legislation, and if the bill moves from this place to the other place then we will be moving amendments to restore the provisions in part XIB when this bill reaches the Senate. Let me make the case for why that is critical.
On the one hand, the government claims it wants to strengthen competition law through the introduction of a general effects test, a short-sighted and dangerous piece of legislation which is legally unworkable, will chill competition and create uncertainty for business. This has the same effect that it did when at least 10 inquiries since 1974 have considered and rejected it. That is right: 10 inquiries have considered this and they have rejected it. But the Prime Minister, a man who has no advisers, because he is always the smartest man in the room, is pushing this reckless, senseless piece of legislation into the chamber today. We hope that he comes to his senses, but, if he does not, we need to rescue something from the ashes of this reckless path.
On the other hand, through schedule 2 of this bill, the government, through its misguided repeal of part XIB, wants to strip away a regime which is tried, true and tested. This is the provision which applies specifically to the telecommunications sector, a sector which has long been at the epicentre of competition disputes. The government would like us to believe that important features of the telecommunication competition regime have been used less over time and that means that they should be repealed—that is, this was a strongly litigated and strongly used piece of legislation when it was originally introduced and that is true but, because it is used less now, we do not need it any more. We argue something different. In fact, this is a very clear reflection of an ex ante regulation working not only in the interests of the industry but, more importantly, in the interests of consumers. The inconsistency in the intent of this bill is just another example of the lack of policy direction that has been plaguing the Turnbull government since its inception.
I want to focus on part XIB. Telecommunication services are one of the key drivers of productivity and growth in the Australian economy. The connectivity afforded by communications networks breaks down the barriers of distance and helps unlock the economic and social potential of the nation by providing all with a stake in society. The centrality of communications to the lives of Australians emphasises the importance of having well-designed competition regulation in the telecommunications sector, and I hope this is a point which is not lost on this parliament. I would like to quote the CEO of the Council of Small Business Australia in comments that were published on 20 November last year:
While there has been plenty of discussion in recent years about the dominance of the banks, the major supermarkets and the big retailers, Australia's telecommunications sector is arguably the worst example of a major failure in competition laws and policy …
I also note that on 5 September last year the ACCC announced it had commenced a market study of the communications sector, with the view of ensuring that implications of developments in the sector are well understood and of identifying issues that prevent relevant markets from delivering outcomes in the interests of consumers. This begs the question: if the government is so confident that the state of competition in the telecommunications sector is such that it warrants the repeal of longstanding and successful legislation, why is the ACCC devoting considerable and scarce resources to a market study of this very sector? If everything is going so swimmingly and we can repeal these provisions in part XIB, why has the ACCC launched a major investigation of regulation within this sector?
The NBN wholesale market indicators report released by the ACCC on 2 February this year also illustrates that structural separation and the market transition to the NBN is an ongoing issue. According to the NBN wholesale indicators, Telstra had almost 51 per cent of the market share for fixed-line services in operation over the NBN at the end of 2016. This has been achieved in the presence of 148 other access seekers of the NBN and the level playing field that it affords. In comparison, Telstra was reported to have nationwide fixed-line broadband market share of 44 per cent in June 2009. Not much has changed over that period. If anything, Telstra has concentrated its market share. In the mobile sector, Telstra was estimated to have a market share of 45 per cent in mid-2016, in comparison with its 42 per cent market share in June 2009.
To be clear, these examples of increasing market share are not to say that the state of competition in the telecommunications sector has not improved or that it is worse than it was before. Rather, it highlights that the impacts of structural separation, transition to the NBN and the broader evolution of the communications sector on the distribution of market power are not yet wholly understood, nor has there been sufficient time for such changes to diffuse through the market. For these reasons alone, it is irresponsible of the Turnbull government to remove tried, true and tested competition safeguards in the telecommunications sector.
I want to talk about how part XIB of the Competition and Consumer Act actually works, because I suspect the majority of members who are going to pile into this chamber very soon and vote in favour of its removal do not have the slightest clue about what they are about to vote for. The introduction of part XIB in 1997 was intended to supplement section 46 of the act by increasing the ability of the ACCC to respond quickly to evidence of anticompetitive conduct in telecommunications markets.
Broadly, the part XIB regime is composed of two limbs. The first is the competition rule, which broadly defines anticompetitive conduct. There are two circumstances where a carrier, a carriage service provider or a content service provider would be considered to have contravened the competition rule. One circumstance is where a carrier or CSP takes advantage of a substantial degree of market power in a telecommunications market, with the effect, or likely effect, of substantially lessening competition in that or any other telecommunications market. The other is where a carrier or CSP engages in conduct relating to a telecommunications market that contravenes the general anticompetitive conduct provisions in part IV of the Competition and Consumer Act, which, of course, includes section 46. The second limb of XIB is the competition notice regime. This is where the teeth start to bite. It enables the ACCC to respond quickly and issue competition notices where it has reason to believe that anticompetitive conduct has occurred. Substantial penalties will apply if a court subsequently finds that this has been the case and that, in fact, anticompetitive behaviour has occurred.
These two elements combine to provide a very strong deterrent against anticompetitive conduct as well as very fast mechanisms for the competition regulator to respond when suspected issues arise. These powers have been entirely appropriate for a sector with very high levels of market concentration and a unique level of interdependency amongst competing firms relative to other sectors of the economy. Simply put, part XIB is working. It is good for competition and it is good for consumers, and the government today should not be scrapping this provision in the act. That is why it exists.
Let's see how part XIB has worked. Since the introduction in 1997, the ACCC has issued five part A competition notices. In 2005-06 alone the ACCC conducted 11 investigations into anticompetitive conduct. The issues investigated in this period included: alleged anticompetitive conduct in relation to the wholesale and retail pricing of line rental, something very dear to most consumers throughout the country; alleged anticompetitive conduct in relation to the retail and wholesale pricing for bundled services, including broadband, local call services and long-distance call services. Then there was an investigation into carriers introducing new retail products to the market before they were available on a wholesale basis to their wholesale customers; and carriers denying or restricting access to retail mobile services used in conjunction with fixed cellular terminals. There was another investigation into alleged resale price maintenance in relation to wireless broadband services; and there was an investigation into alleged anticompetitive conduct in relation to corporate and government telecommunications services.
What all of these investigations prove is that, when the regulatory gaze is upon the industry, behaviour changes. The ACCC itself noted in relation to some of these investigations that 'the alleged conduct either ceased or changed following the ACCC's inquiries'. There you have it, Deputy Speaker: far from being the case where only litigation corrects or changes behaviour, the mere intervention of an activist regulator conducting inquiries or investigations changes the behaviour of the market players. Who benefits? The consumer—the consumer benefits.
The last Part A competition notice formally issued by the ACCC was in April 2006 in relation to a Telstra wholesale line rental price increase for basic telephony services. At the time of the price increase for wholesale access, there was no corresponding increase to the retail price. This left competitors dependent on the wholesale service at a disadvantage. It was an unacceptable proposition for the competition regulator, who subsequently took action. In its report on telecommunications competition safeguards shortly thereafter, the ACCC noted the complexity of the task before them in building the case. It said:
Investigating alleged price squeezes is a highly involved process, involving the collection and analysis of extensive costing, pricing and other material from industry participants, and assessing that material against the complex economics and jurisprudence relating to misuse of market power and the lessening of competition.
The history of the use of Part X1B and other relevant parts of the act, which in a few short moments are going to be stripped from this act, if the government gets its way, shows that there is indeed an ongoing need for these industry-specific provisions within the act and an ongoing need for an activist regulator which has built up industry-specific knowledge and expertise to ask the right questions, conduct the right investigations and ensure that we have an industry which is structured in a way that delivers highly-competitive, quality services to the end users in the telecommunications industry. The luddites over there might not understand what they are about to vote for, but I can tell you that, if they vote these provisions out of the act, it will be consumers who suffer at the end of the day.