Commerce Commission delivers for consumers
Media Release
Issued 23 December 2005/084
Commerce Commission delivers for consumers
2005 has been a busy year for the Commerce Commission, with some great results for New Zealand consumers.
"The Commission set a new strategic direction two years ago to maximise the impact of its activities," said Commission Chair Paula Rebstock.
"We have a strategy of focusing our efforts where they will have the greatest impact for consumers, and that strategy is working."
Ms Rebstock said the Commission had responsibilities right across the New Zealand economy.
"It's important for consumers and businesspeople to understand that competition and consumer law applies equally to the biggest companies in New Zealand and the corner dairy."
Commerce Act
The Commission's priorities for Commerce Act enforcement are cartels and price fixing. In April, proceedings were filed against parties in an alleged Chemicals cartel. In 2004 the Commission introduced a Leniency Policy that encourages cartel members to break ranks and receive immunity by cooperating with the Commission's investigation. Since the policy's introduction, the Commission has received five of applications for leniency which are now under investigation.
In October four Palmerston North eye surgeons admitted to price fixing, and were ordered to pay a total of $85,000 in fines and costs. By fixing prices instead of competing with each other, the surgeons effectively created a monopoly, potentially resulting in higher prices for eye surgery in the Palmerston North area. "The Commission remains concerned about anti-competitive conduct in the health sector," said Ms Rebstock.
The Commission currently is considering three significant authorisations for anti-competitive arrangements in relation to the Maui Pipeline Operating Code, the Pohokura gas pipeline, and the New Zealand Rugby Football Union.
In the six months since July 1 2005 the Commission has received 16 applications for mergers and/or acquisitions, compared to 18 applications for the whole of 2004/05 and 24 for the whole of 2003/04.
Many of the applications raised complex issues, resulting in longer timeframes for decision making. "The Commission appreciates that timely decision making is needed to provide certainty to business but this must be balanced the need to undertake appropriate analysis and ensure our decisions are robust," said Paula Rebstock. "The Commerce Commission still makes decisions on mergers and acquisitions in a fraction of the time taken by overseas agencies, and New Zealand is the only jurisdiction where full written reasons are given for decisions."
Fair Trading Act
Fair Trading work in 2005 ranged from high-profile court cases against some of New Zealand's biggest companies, to enforcing safety standards that protect New Zealand's smallest citizens.
The telecommunications industry has been a focus for Fair Trading Act enforcement. "Telecommunications is a large sector of the economy, and one that touches our lives every day," said Ms Rebstock. "It is also a fast-moving industry with many areas where competition is still emerging. With new products and services coming out all the time, consumers sometimes struggle to keep up with the play, so it's particularly important that telecommunications companies don't attempt to mislead them."
In May internet provider Slingshot admitted it misled customers in television advertising. In August the Court of Appeal ordered Telecom Mobile to publish corrective advertising that could result in multi-million-dollar refunds after it found the company should have told customers of their rights under the Door to Door Sales Act. In October Telecom Mobile agreed to pay $54,000 in compensation to over 11,000 customers who were charged peak rates for off-peak calls. In November the Commission reached a settlement with TelstraClear over unauthorised switching of customers, and with Cardcall and Global Card Services, two Australian providers of pre-paid calling cards.
Health and nutrition claims are another priority area for the Commission. "The blatant deceit attempted by some traders in promoting so-called health products is staggering," Ms Rebstock said. "Unfortunately, as one expert witness commented in the Body Enhancer trial, 'the consumers of weight loss products are particularly vulnerable to "magic bullet" claims.' The scientific or pseudo-scientific claims made about health and weight loss products are particularly hard for consumers to assess, so it is crucial that they are accurate."
In July, Ecoworld were ordered to pay $136,000 in fines and refunds for misrepresenting the powers of its "living water" product. In September Zenith Corporation was found guilty of misrepresenting the effectiveness of its Body Enhancer product, and is awaiting sentencing. In November, misleading claims about Celluslim pills resulted in refunds of $195,000 from vendors Marketing Direct, along with $61,000 in fines and costs. Also in November, the Tomorrow Dream Line company and its director Jonathan Ken were convicted for a second time for claiming ordinary honey was Active Manuka honey, valued for its antibacterial properties.
A finding in November that Air New Zealand misled customers in its advertising will have wide implications for advertising in New Zealand, particularly the judge's ruling that operational costs must be included in the price and cannot be added as extras. Of 20 sample charges, the Court found 14 were proven, suggesting that the Commission is likely to succeed on approximately 300 of the total 342 charges. The Commission has appealed the decision to clarify aspects of the case.
Also in November, the Commission warned on-line
sales [j1] Credit Contracts and Consumer Finance
Act The Commission began enforcing this new Act in April
and by June had visited fifty credit providers in Auckland,
Wellington and Christchurch and came back with a mixed
report card for the credit industry. As a result of the
visits the Commission gave advice to the industry and agreed
to provide guidance on s 45 of the Act, relating to credit
insurance. In October the Commerce Commission warned
Financial Options Group and its director Anton Keane that
they may be breaching the Credit Contracts and Consumer
Finance Act with house buy-back schemes in
Auckland. Regulation In July the Commission was given
new responsibilities to regulate the gas pipeline industry.
The Minister of Energy accepted the Commission's finding
that lack of competition in the industry was leading to high
prices and excess profits. The Minister announced that the
gas pipelines businesses of Powerco and Vector would be
placed under the Commission's control, and a thresholds
regime would be introduced for the industry. In August the
Commission made an order requiring Powerco and Vector to
drop their prices by 9% and 9.5% respectively. The
Commission reached a milestone when it announced for the
first time its intention to declare control of an
electricity distribution business. The Commission published
its intention to declare control of Unison Networks in
September after preliminary findings that consumers would
benefit from control being imposed. Unison Networks is owned
by the Hawke's Bay Energy Trust, and the Commission's
inquiry found that profits earned from Unison's Rotorua and
Taupo consumers, who are not beneficiaries of the Trust, are
significantly higher than those taken from consumers in
Hawke's Bay, who own the Trust. Consultation on the
intention to declare control is continuing. In December
the Commission published its intention to declare control of
Transpower, the electricity transmission company that owns
the national grid. The move follows an inquiry after the
company breached regulatory thresholds. The Commission's
preliminary view is that the imposition of control will
result in long-term benefits for consumers. The Commission
must now consult with interested parties and aims to make a
final decision by March 2006. In August the Commission
issued a final determination on telephone number portability
meaning telephone users switching companies will be able to
keep the same phone number. Companies must provide number
portability by 1 April 2007. "Universal number portability
will improve competition in the local and cellular markets,"
said Telecommunications Commissioner Douglas Webb. "Number
portability must be in place by April 2007, but I expect
companies will do their best to bring forward the
availability date." The Commission's December decision to
give TelstraClear access to the wholesale bitstream service
provided by Telecom was welcomed by telecommunications
users. "This decision gives TelstraClear the ability to
compete and innovate in supplying broadband services across
New Zealand" said Telecommunications Commissioner Douglas
Webb. "TelstraClear will be able to differentiate its
services from Telecom's broadband services. The result will
be more choice and greater competition." Also in December
the Commission released its draft report on mobile
termination recommending that the cost of calling cellphones
from landlines should be regulated. A previous report
reached the same conculusion but the Commission was asked to
reconsider that in the light of offers from Telecom and
Vodafone to voluntarily reduce mobile termination rates. The
Commission compared the benefits of regulation to the offers
by Telecom and Vodafone and found that regulation would
bring greater benefits for end users. "The Commission
continues to believe that regulation will bring substantial
benefits to businesses and consumers making fixed-to-mobile
calls," said Telecommunications Commissioner Douglas
Webb. In December the Commission finalised its
determination of a dispute between Open Country Cheese and
Fonterra relating to the reasonable transport costs for
transport of raw milk to OCC. The Commission found that
Fonterra's transport charge is not reasonable and breaches
regulations under the Dairy Industry Reform Act. Fonterra
must now calculate its charge in a different way, resulting
in a lower transport cost for Open Country
Cheese. BACKGROUND SECTION FOLLOWS Background - Commerce
Act Eye surgeons price fixing. In August four surgeons
admitted breaching the Commerce Act by fixing the prices to
be paid for eye services, and were ordered to pay a total of
$85,000 in fines and costs. The settlement followed a
Commerce Commission investigation into the surgeons'
dealings with the District Health Board, MidCentral Health
Limited. By fixing prices instead of competing with each
other on price, the surgeons effectively created a monopoly,
potentially resulting in higher prices for eye surgery in
the Palmerston North area. The Commerce Commission has
previously prosecuted the Opthalmological Society and two
eye surgeons for anti-competitive behaviour in Southland.
The case resulted in fines and costs of nearly
$600,000. Maui Pipeline Operating Code. In August Todd
Petroleum Mining Company Limited and Todd Taranaki Limited
applied to the Commerce Commission for authorisation to
enter into a contract to which sections 27, 28 or 29 of the
Commerce Act might apply. The relevant contract is the Maui
Pipeline Operating Code. The Commerce Act allows for
authorisation of potentially anti-competitive business
practices if the public benefit is greater than the
detriment to competition. Pohokura gas pipeline. In
October the Commission announced it would issue a second
draft determination on whether to revoke or vary the
Pohokura gas authorisation. The Commission previously
authorised an arrangement allowing Shell, OMV and Todd to
jointly market the gas from the Pohokura gas field in
Taranaki on the basis that joint marketing would allow the
gas to be made available earlier than would be possible if
the companies marketed it separately. Since that time, the
parties have been unable to agree on a joint approach, and
will separately market the gas. The Commission is
considering revoking its previous authorisation. The New
Zealand Rugby Football Union applied to the Commission in
November for authorisation to enter into a Collective
Employment Agreement between the NZRU and Rugby Players
Collective Incorporated. It is proposed that the new
Collective Employment Agreement will set a salary cap on the
total annual player payments made by each of the 14 Air New
Zealand Cup provincial unions. The level of the proposed
cap will initially be set at $2 million for each provincial
union for 2006, and would be adjusted by the CPI each year
after that. A number of other measures are also being
proposed. The Commission intends to make a final
determination by the end of March 2006. Background - Fair
Trading Slingshot. In May internet service provider
Slingshot admitted its television adverts were liable to
mislead consumers because conditions attached to its
unlimited dial-up internet plans from $9.95 offer were
unreadable in its television advertising. Slingshot changed
the graphics used in advertisements and added a voiceover
drawing attention to the conditions. Telecom Mobile
Door-to-Door. In August the Court of Appeal found that
Telecom Mobile "seriously misled customers" in door-to-door
and telemarketing campaigns, by failing to tell them about
their rights under the Door to Door Sales Act. The marketing
campaigns targeted the customers of a rival network and
encouraged them to switch their mobile use to Telecom 027.
Telecom Mobile was ordered by the Court of Appeal to contact
customers who responded to the campaigns, and undertake
corrective advertising. The company has been granted leave
to appeal to the Supreme Court. Telecom Mobile billing
fault. In October the Commission reached a settlement with
Telecom Mobile after a billing fault on the 027 network
resulted in thousands of customers being charged peak rates
for off-peak calls. Telecom Mobile admitted breaching the
Fair Trading Act and agreed to credit approximately 11,000
affected customers a total of $54,000. Telecom Mobile
admitted that it did not act quickly enough to fix the fault
or notify its customers of the problem. TelstraClear. In
November TelstraClear admitted breaching the Fair Trading
Act and agreed to change its approach to telemarketing and
audit its compliance with the Act after a Commerce
Commission investigation found that it had switched
customers to the TelstraClear network without their consent.
Calling cards. In November the Commission reached a
settlement with two Australian-based providers of prepaid
calling cards, Cardcall Pty Ltd and Global Card Services Pty
Ltd, after an investigation found that hidden costs and
conditions meant customers were charged more for calls than
they expected. Grander Living water units. In July,
Ecoworld paid out $136,000 in fines and refunds for
misrepresenting the powers of its Grander Living water units
which sold for up to $12,000. In a sealed section the units
contained "living water," claimed to be from glacial melts
in Austria's Tyrolean mountains, and Ecoworld claimed that
any water brought into close proximity with this living
water would gain special properties. Tests showed no
difference between water that had passed through the system
and ordinary water. Body Enhancer. In September, Zenith
Corporation was found guilty of breaching the Fair Trading
Act with claims its Body Enhancer liquid would assist with
weight loss and improve health. Judge L.H. Moore found that
"Body Enhancer has been proved beyond reasonable doubt not
to be suitable for any of the purposes claimed and not to
confer upon its users any of the benefits alleged." Zenith
Corporation has not yet been sentenced. Fake manuka
honey. In November, Tomorrow Dream Line and its director
Jonathan Ken were convicted for a second time for claiming
ordinary honey was Active Manuka honey, which attracts
higher prices for its antibacterial properties. In March
2005 Mr Ken pleaded guilty to similar charges, but the
Commission pursued a second case after more instances of
false labelling came to light. Fines of $14,500 were
imposed. Celluslim. Denis O'Neil and Martini Limited faced
a $195,000 refund bill in November after making misleading
claims that its Celluslim pills would assist with weight
loss and cellulite reduction. Judge Wilson QC said: "...any
person who purchased Celluslim wasted their money." Air
New Zealand. The Auckland District Court ruled in November
that 14 of 20 sample Air New Zealand advertisements were
misleading. A key finding was that fuel costs are an
operating cost and must be included in the price of airfares
and not charged as an extra. TradeMe cots. The Commission
warned TradeMe in November that it could be liable for fines
up to $200,000 if it allowed people to advertise unsafe cots
on its site. TradeMe agreed to proactively monitor the site
and remove any non-compliant products posted for sale, and
ban users who persist in advertising unsafe products. The
cot safety standard is designed to prevent children being
suffocated or strangled and is enforced by the Commerce
Commission. Background - Credit Contracts and Consumer
Finance Act Financial Options buy-back warning. A buy-back
transaction is where a homeowner transfers, or agrees to
transfer, ownership in a property to another party (known as
the buy-back operator). The homeowner will still occupy the
property and has the right to repurchase the property from
the buy-back operator at a later date. The Commission has
longstanding concerns about buy-backs, and the warning to
Financial Options is part of its ongoing focus on buy-back
operators. Background - Regulation Gas pipelines
industry. In July the Minister of Energy accepted the
Commerce Commission's recommendation that gas pipeline
services provided by Powerco and Vector be controlled under
Part 5 of the Commerce Act. The Commission found in its gas
control inquiry report that competition in the gas pipeline
industry was limited and excess returns were being made by
Powerco and Vector. Intention to declare control of Unison
Networks. Unison supplies consumers in the Hawke's Bay,
Taupo and Rotorua regions. The company is 100% owned by the
Hawke's Bay Power Consumers' Trust, which acts on behalf of
the consumers connected to Unison's network in Hawke's Bay.
The Commission assessed Unison's return on investment for
the year ended March 2006 to be as high as 12.23%. This
compares to the Commission's estimate of the required rate
of return of 7.35%. Intention to declare control of
Transpower. By January 27 2006 the Commission will release a
paper setting out the reasons for its intention to declare
control, which are based on the Commission's preliminary
conclusions from its post-breach inquiry and analysis
undertaken to date. Interested persons may make submissions
on the paper. The due date for written submissions is 5pm,
15 February 2006. Cross-submissions will be due by 5pm, 22
February 2006. The Commission will aim to make a final
decision and publish its decision paper by 5pm Friday 17
March 2006. Telephone number portability. Number
portability makes it easier for customers to switch
telecommunications service providers by allowing customers
who switch provider to keep their existing telephone number.
While local number portability is currently available to
some customers, the determination sets a path for an
efficient industry-wide solution that will provide number
portability for all local and cellular users. Mobile
termination. The Commission expects that reductions in
mobile termination rates will flow through into retail
fixed-to-mobile prices paid by consumers, and it will
monitor retail developments. Written submissions on the
Commission's draft determination close on 20 January 2006
and cross submission on 5 February 2006. The Commission
expects to send its final reconsideration recommendation to
the Minister of Communications in the first quarter of
2006. TelstraClear bitstream access. Bitstream is an input
to the provision of broadband to consumers on Telecom's
copper local access network. TelstraClear will combine
bitstream with its own transmission and ISP services to
create its own broadband services for customers. Telecom is
required to provide nationwide bitstream access to
TelstraClear with the maximum downstream speed technically
available (currently 7.6Mbps) and an upstream speed of
128kbps upstream, at a GST-exclusive price of $27.87 per
month. Open Country Cheese dispute with Fonterra. Under
the Dairy Industry Restructuring (Raw Milk) Regulations
2001, Fonterra is required to supply Open Country with raw
milk at the default milk price. Regulation 8(5) provides
that the default milk price is the wholesale milk price for
the season plus the 'reasonable cost of transporting the raw
milk to the independent processor'. The Commission found
that Fonterra's charge based on its national average
transport cost is not reasonable for transport to Open
Country. Fonterra has therefore been acting in breach of
the Regulations.
ENDS