Consumables is LegalVision’s weekly update on all things competition and consumer law. The update follows the activities of the national regulator, the Australian Competition and Consumer Commission (ACCC) – and keeps you informed about key developments relating to the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (ACL).
In July, the ACCC is seeking input from industry participants on several important issues – so get your pens ready.
This week’s highlights:
- The regulator kicked off a public inquiry to decide whether ADSL (asymmetrical digital subscriber line) should still be a service that is regulated under legislation;
- Metcash offered up draft undertakings in an attempt to allay fears about its acquisition of a hardware wholesale business from Woolworths;
- The ACCC voiced preliminary concerns that a proposed acquisition could reduce competition for fibreboard products; and
- The ACCC published a collective bargaining guide for small businesses and farmers.
Access to the Internet
ADSL is the technology most commonly used for delivering fixed-line broadband internet services in Australia. Since 2012, the wholesale supply of ADSL has been a “declared service”, which means that the service is regulated under legislation.
Part XIC of the CCA establishes a comprehensive regime providing for access to “declared services” in the telecommunications industry. The object of the regime is to promote the long-term interests of end-users of telecommunications services. Businesses that provide a declared service (“service providers”) have obligations to supply that service to other businesses that want to use it (“access seekers”).
The regulatory framework empowers the ACCC to make a written determination specifying terms and conditions of access to a declared service. Where an access determination is in place, that determination provides the default terms and conditions on which the service provider must provide the declared service to an access seeker. However, the parties are still free to negotiate a commercial agreement for access, which will prevail over the ACCC’s determination.
The ACCC made a Final Access Determination in relation to ADSL in May 2013. That Determination is due to expire in February 2017. The ACCC has therefore started the process of reviewing the market to determine whether wholesale ADSL should remain a declared service after 2017.
One of the key issues that may affect the ACCC’s decision is the increasing availability of the NBN across the country. The NBN rollout is a significant change in the dynamics of the industry compared to when ADSL was originally declared as a regulated service.
The ACCC has kicked off its inquiry process with a discussion paper. Responses to the discussion paper are due in late July.
Building an Undertaking
The Australian supermarket giants, Coles (owned by Wesfarmers) and Woolworths, are often attracting the attention of the ACCC. But this time, it’s a transaction between Woolworths and Metcash (the owner of the IGA supermarket brands) that’s under the regulator’s radar.
Woolworths has decided to shed its hardware businesses Masters and Home Timber & Hardware (HTH). Metcash, who currently owns Mitre 10, had put in a bid for HTH. To complete the picture, Bunnings is owned by Wesfarmers.
From its initial market inquiries, the ACCC was concerned that the HTH transaction would reduce competition for the wholesale supply of hardware to retailers (hardware stores). According to the ACCC, Metcash will have a stake in over 100 retail stores if the deal goes ahead. The fear is that Metcash’s wholesale arm might preference the stores within its network, rather than other retailers.
The ACCC was in the process of reviewing the deal, with a decision due in late June. But the regulator delayed its decision, to allow time to consider draft undertakings put forward by Metcash. Under section 87B of the CCA, the regulator may accept written undertakings in relation to a proposed merger. In this case, Metcash’s undertakings are intended to resolve the preliminary competition concerns raised about the deal.
The ACCC has made clear that it has not yet formed a view about whether it will accept the undertakings. However, if the ACCC does accept the undertakings, it is more than likely that the deal will go ahead.
The ACCC has asked for submissions on the draft undertakings by mid-July.
Statement of Issues for Manufacturing Acquisition
Next up, another proposed acquisition that has raised competition concerns. This acquisition relates to medium-density fibreboard products – which probably sounds a bit more obscure than supermarket giants and home improvement stores. But apparently, these fibreboard products are common fare in residential and commercial buildings.
The Borg Group is seeking to buy up some manufacturing assets currently owned by Alpine MDF Industries. But the ACCC is not convinced. The regulator has released a Statement of Issues setting out concerns about reduced competition, leading to price hikes down the track.
In the merger review process, the ACCC will often publish a Statement of Issues if it has identified some preliminary concerns with a transaction. The purpose of the Statement of Issues is to set out the regulator’s early views on competition, flag areas for further consideration and seek input from market participants.
The competitive constraint of imports may save the day for Borg’s acquisition aspirations. Other than Borg and Alpine, there is only one other Australian manufacturer of these fibreboard products – which is part of the reason why the ACCC is worried. But if the regulator could be convinced that the Australian manufacturers would be kept in line by imports from overseas, it might be less concerned about concentration in the domestic market.
Again, the ACCC is seeking submissions in July.
Even if the outcome is bad for Borg, we saw from last week’s authorisation of the Sea Swift/Toll transaction that there’s always the plan B of proving a public benefit to the Australian Competition Tribunal.
Power in Numbers
Finally this week, the ACCC has published a new guide about collective bargaining. The guide is pitched at small businesses and farmers that may be required to negotiate important deals with larger companies.
In general, competitors are required to act independently in their business dealings. The CCA prohibits competitors from colluding about pricing and other business decisions. However, in some circumstances, it makes sense for competitors to work together to finalise the terms and conditions on which to deal with a common customer or supplier.
For example, several farmers might sell their milk to a supermarket chain. The bargaining power of each farmer would be heavily unbalanced compared to the supermarket – and it is likely that a better outcome could be reached if the farmers jointly negotiated with the supermarket.
The CCA strikes this balance by providing mechanisms for collective bargaining arrangements to be allowed where there is a net public benefit. Similarly, the ACCC recognises that collective boycotts may be a necessary evil in some negotiation scenarios. Collective boycotts involve a group of competitors all refusing to deal with a common consumer or supplier unless the consumer or supplier meets the demands of the group.
Importantly, collective bargaining is not just intended to benefit small businesses that decide to collaborate in their dealings with larger entities. According to the ACCC, collective bargaining is also good for the company on the other side of the negotiation table, because it can lead to reduced costs and increased certainty.