Commerce Commission highlights for 2003

Commerce Commission highlights for 2003

Managing a higher than usual level of adjudication under the Commerce Act, preparing for new enforcement responsibilities and achieving major milestones in the telecommunications and electricity lines industries were significant highlights for the Commerce Commission during the year.

Chair Paula Rebstock said that 2003 had been an extraordinary year for the Commission.

“The Commission continued its work on two authorisation applications relating to the joint marketing arrangements for Pohokura gas, and the joint application from Air NZ and Qantas to form an alliance, and completed two determinations under the Dairy Industry Restructuring Act.”

“In addition, the Commission implemented key aspects of the Telecommunications Act, took significant steps in developing and implementing the new regulatory regime for electricity lines businesses, initiated its regulatory control inquiry into gas pipeline services, and prepared for its new enforcement responsibilities for the motor vehicle information standard and the Credit Contracts and Consumer Finance Act,” Ms Rebstock said.

General Market - Commerce The Commission’s activities during the year included: authorising OMV New Zealand, Shell Exploration and Todd Petroleum Mining to work together to jointly market and sell gas produced from the Pohokura gas field, subject to specific conditions; rejecting the proposed alliance between Qantas Airways Limited and Air New Zealand Limited on the grounds that it would damage competition and harm consumers and was therefore not in the interests of New Zealanders; entering into a settlement with Liquigas Limited, the national distributor and wholesaler of LPG, to change what the Commission considered to be anti-competitive behaviour within that market; the Court of Appeal upholding the High Court ruling that Giltrap City Limited and its former managing director, Andrew Thomas MacKenzie, had breached the Commerce Act by entering into price fixing arrangements with other Toyota dealers in 1993; the New Zealand Dental Association making changes to how it conducts it annual national price survey in the future as a result of Commission enforcement action; settling out of court with British American Tobacco Holdings (New Zealand) Limited for an alleged breach of the Commerce Act, requiring divestment of certain international cigarette brands with an estimated net present value of $10 million, plus a contribution of $350,000 to the Commission’s costs; and clearing Wakefield Hospital to acquire Bowen Hospital, Proctor & Gamble to acquire Wella, Bungy NZ to acquire Pipeline Bungy, ANZ to acquire the National Bank, South Pacific Seeds to acquire Yates, Best Western to acquire Pacifica, and Burns Philp to acquire Goodman Fielder subject to a divestment of the New Zealand yeast business of New Zealand Food Industries.

Fair Trading Following the passage of the Fair Trading Amendment Act (No3) in July 2003, the Fair Trading Act was significantly strengthened, with an increase in the maximum penalties for offences from $30,000 to $60,000 for individuals and $100,000 to $200,000 for companies and an extension of the Commission’s information gathering powers.

Fair Trading Act investigations were completed in a wide range of industries, including the Commission’s strategic priority areas of telecommunications and financial services industries, motor vehicles, pro-forma invoicing and misleading representations relating to price.

Fair Trading Act cases in 2003 included: Infinity Concierge NZ Limited and its promoters fined a total of $41,000 for operating or promoting a pyramid scheme, with an order made that $7,875 in membership fees be repaid to two witnesses from a frozen company bank account; time-share company One World Leisure (NZ) Limited fined $30,000 for misleading the public in its promotion of time-share investments and holiday ownership; Indio Beverages NZ Limited, a subsidiary of Lion Nathan Limited (Australia), fined $28,000 for misleading labelling of its Kentucky Rebel Bourbon & Cola product;

In addition, the Commission entered into settlements with 44 businesses and issued warnings to 131 businesses in relation to alleged breaches of the Fair Trading Act. Significant outcomes included: Meridian Energy Limited and Trustpower Limited both admitting breaches of the Fair Trading Act and agreeing to refund affected customers; Kiwibank Limited admitting an advertising campaign it ran promoting ‘cheaper home loans guaranteed’ was liable to mislead consumers and agreeing to amend its loans processes to ensure that it delivered on its promises; and A2 Corporation Limited and its licensed A2 producers agreeing to amend their promotional material to remove any statements that imply the complete exclusion of beta casein A1 from A2 milk.

Telecommunications Key achievements during the year in relation to the Commission’s role under the Telecommunications Act include: the delivery of the Commission’s final report to the Minister of Communications recommending that regulation should be introduced to improve competition for broadband Internet services in the residential and small and medium-sized business markets; the release of the Commission’s final determination on the calculation of Telecom’s net cost of complying with its telecommunication service obligations for 20 December 2001 to 30 June 2002, setting the cost for that period at $34.72 million; the release of the Commission’s determination relating to the supply at wholesale of Telecom retail services to TelstraClear; and the publication of a draft report proposing an amendment to the formula under the Telecommunications Act for setting initial prices for bundled service offerings.

Electricity Lines Businesses The Commission has continued to make progress on developing the new regulatory regime for electricity lines businesses under Part 4A of the Commerce Act 1986. Key achievements during the year included: the final decision to set two thresholds, a price path threshold and a quality threshold; the commencement of work on the information disclosure requirements that will be required to support the thresholds regime; and the preparation and public release of a series of papers on different aspects of the new regime including an Issues Paper relating to the development of an Optimised Deprival Valuation handbook for the valuation of system fixed assets.

Dairy Industry During the year, the Commission issued its first two determinations under the Dairy Industry Restructuring Act. The Commission determined: that the discount rate for calculating Fonterra’s annualised share value for the 2001-2002 season was 11.7 percent, compared with the discount rate proposed by Fonterra of 8.25 percent; and that Fonterra subsidiary New Zealand Milk Products breached the Raw Milk Regulations by refusing to supply Independent Dairy Producers Limited with raw milk at the default milk price from 1 June 2002 to 31 July 2002.

Looking ahead In the year ahead, the Commission will apply its revised enforcement criteria across its range of enforcement responsibilities.

“In the Fair Trading area, the Commission has identified the telecommunications and financial services industries, motor vehicles, pro-forma invoicing and misleading representations relating to price as strategic priorities,” Ms Rebstock said.

The Commission will undertake new work under the Credit Contracts and Consumer Finance Act and the motor vehicle information standard and will hold a series of briefings nationwide on its new Mergers and Acquisitions Guidelines.

In addition, the first assessments and possible inquiries under the electricity thresholds regime will commence and the Commission and will report to the Minister of Energy on its inquiry into the supply of gas pipeline services.

“The Commission is set for another challenging year”, said Ms Rebstock.

Visit the Commission’s website at www.comcom.govt.nz for more information on its activities, including media releases and pdf versions of its Annual Plan, Annual Report and Annual Report Companion – Regulatory Control and Enforcement Activities of the Commission.

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