ACCC Chairman Sets out Failings of Price Monitoring

1 REGULATORY OBSERVER ACCC Chairman sets out failings of price monitoring On 29 October 2015, the Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims delivered a speech to the Gilbert + Tobin infrastructure workshop contending that price monitoring for monopoly infrastructure is ill-conceived in theory and not working in practice in Australia.

Mr Sims called for a return to the approach to regulation of monopoly infrastructure envisaged by the Hilmer Committee, which recognised that this regulation would require, at a minimum, the implementation of a negotiate/arbitrate framework.

Mr Sims suggested that experience has shown that, in circumstances of natural or legislated monopoly, price monitoring will have little or no longer term impact on the conduct of the monopoly infrastructure owner.

Mr Sims said price monitoring ignores the need to give the parties negotiating with the monopolist some strength to their arm.

‘They cannot threaten not to use the facility, so at least give them the threat of referring a dispute over prices or terms to binding arbitration.’

Mr Sims noted there may soon be an opportunity to remedy misconceptions, with one of the important recommendations of the Harper Review being that all Australian governments commit to a revitalised set of competition principles.

‘I would like to suggest that the relative merits of price monitoring versus some form of price regulation (including negotiate/arbitrate) are taken into account in any revised agreement.’

The ACCC considers it is important to address this issue as only using price monitoring for monopoly infrastructure, rather than stronger regulation such as a negotiate/arbitrate regime, can damage Australia’s competitiveness and productivity through higher than necessary infrastructure prices and/or reduced service levels.

2 REGULATORY OBSERVER UK: Ofcom announces digital era. This consultation is details of 2016 spectrum part of a strategic review that auction ARCEP began in June 2015. International On 26 October 2015, the Ofcom FRANCE: ARCEP confirmed an auction is planned authorises Orange to Regulatory to take place in early 2016 for conduct 5G trials spectrum made available by the Round-up Ministry of Defence as part of a On 30 September 2015, the wider Government initiative to ARCEP issued an authorisation free up public sector spectrum for for Orange to conduct trials of 5G COMMUNICATIONS civil uses. A total of 190 technology in the city of Belfort, megahertz (MHz) of high- France, up to the end of 2016. capacity spectrum is being made The trials will examine the Europe available in two bands – 2.3 conditions of use for frequency gigahertz (GHz) and 3.4 GHz – bands between 6 GHz and 100 UK: Ofcom removes which are particularly suited for GHz for 5G. These very high ‘wholesale must-offer’ for high-speed mobile broadband frequency bands are currently not Sky Sports 1 and 2 services, because they can carry being used by mobile networks, large amounts of data. and represent a key component On 19 November 2015, the Office in achieving the performance of Communications (Ofcom) objectives being set for 5G. announced its decision to remove FRANCE: ARCEP launches the regulation requiring Sky to public consultation on its offer Sky Sports 1 and 2 on a regulatory priorities Americas wholesale basis, as the company On 13 November 2015, the is now widely supplying these US: FCC takes action to Autorité de régulation des channels to other pay TV facilitate mobile broadband communications électroniques et providers on commercial terms. des postes (ARCEP) launched a and next generation The 'wholesale must-offer' public consultation on its wireless technologies regulation was introduced in regulatory priorities, and new 2010. On 22 October 2015, the Federal approaches to regulation in the Communications Commission

3 REGULATORY OBSERVER (FCC) proposed new rules for (CEF). A budget of €5.35 billion On 14 October 2015, the National wireless broadband in wireless has been allocated to trans- Audit Office released a report on frequencies above 24 GHz. It European energy infrastructure the economic regulation of the was previously assumed physical under the CEF from 2014 to water sector in England and and technical limitations could not 2020. Wales. The report found that support mobile service in these since privatisation in 1989, most bands. The FCC proposes to UK: Ofgem reports on measures of service quality have create new flexible use service regional differences in improved markedly. Customer rules in the 28 GHz, 37 GHz, 39 bills have increased to pay for GHz, and 64-71 GHz bands. network charges these improvements. The On 23 October 2015, the Office average household bill for water CANADA: CRTC of Gas and Electricity Markets and sewerage was £396 in 2014- conducting project (Ofgem) published a report on 15, which is a 40 per cent increase in real terms since measuring the performance regional differences in the way costs for transporting energy are privatisation, with most of the of broadband internet recovered from bills. This follows increase happening between services the Energy and Climate Change 1990 and 1995 under the government’s initial price control. On 18 November 2015, the Select Committee’s inquiry into Canadian Radio-television and energy network costs. The report Telecommunications Commission provides information for the (CRTC) announced that data was Committee and other being collected from ‘Whiteboxes’ stakeholders as to why energy installed in the homes of 4,500 consumers in different parts of Australian participants that will feed into the Great Britain pay different first national, independent electricity and gas distribution Regulatory broadband performance report. network charges. The data being gathered will Round-up provide insight into network Oceania performance, including actual connection speeds, and provide a NZ: Commerce COMMUNICATIONS better understanding of whether Commission adjusts certain internet services from Transpower’s maximum ACCC proposes to declare participating internet service providers are delivering speeds allowable revenues a Superfast Broadband as advertised. On 11 November 2015, the Access Service Commerce Commission of New On 6 November 2015, the ACCC Zealand (CCNZ) completed its released a draft decision ENERGY review of Transpower’s proposed proposing to declare a Superfast update to the forecast maximum Broadband Access Service Europe allowable revenue (MAR) for the (SBAS). The ACCC proposes 2016-17 to 2019-20 pricing years. that telecommunications EU: European Commission The yearly adjustments ensure providers be allowed access to that Transpower does not under services with a downstream data announces key energy or over-charge consumers. The infrastructure projects to rate normally more than 25 CCNZ has reduced the forecast megabits per second (Mbps) on integrate Europe’s energy MAR for 2016-17 from $NZ918.6 all fixed line networks. Access will markets million to $NZ911.7 million. not be required where the On 18 November 2015, the network operator is already European Commission (EC) OTHER facing competition from adopted a list of 195 key energy alternative fixed network infrastructure projects which will INFRASTRUCTURE providers. form key building blocks of the EU’s Energy Union. The projects ACCC will not oppose – known as Projects of Common Europe Vocus’s proposed Interest (PCIs) – will benefit from UK: National Audit Office acquisition of M2 accelerated permitting procedures and improved releases report into On 5 November 2015, the ACCC regulatory conditions and may be economic regulation of the announced that it will not oppose eligible for financial support from water sector Communication Limited’s the Connecting Europe Facility (Vocus) proposed acquisition of

4 REGULATORY OBSERVER M2 Group Limited (M2). The compliance of the retail energy On 20 October 2015, the AER ACCC concluded that this was market. The performance report issued preliminary decisions for primarily a merger between two outlines energy retailers’ AusNet Services, CitiPower, complementary businesses. performance in 2014-15 in such Powercor, Jemena and United Significantly, the merged firm will areas as customer service, Energy, which are expected to also face significant competition complaints, payment assistance reduce the amount consumers from Optus, Telstra and TPG. to customers in financial difficulty pay for electricity in Victoria. The This merger consolidates the and customers disconnected for preliminary decisions will be fourth provider in the market. not paying energy bills. The effective from 1 January 2016 compliance report notes the AER and are expected to lead to ACCC releases fixed line took court action for breaches of savings of between $27 and $75 services decision the explicit informed consent on the average Victorian obligations and issued household’s annual electricity bill On 9 October 2015, the ACCC infringement notices for breaches over the next five years, released its final decision on the of life support and hardship depending on the distribution prices that other operators pay to customer obligations. network servicing their home and use Telstra’s copper network to whether the savings are passed provide telecommunications AER issues final decisions on in full by retailers. services to consumers. The final for Queensland decision will require a one-off AER releases new uniform fall of 9.4 per cent in On 29 October 2015, the AER electricity transmission roll access prices from current levels issued final decisions on the for the seven fixed line access revised revenue proposals forward model services. The new prices apply submitted by the Queensland On 23 October 2015, the AER from 1 November 2015 until 30 electricity distribution businesses published a new version of the June 2019. Energex and Ergon Energy. The roll forward model (RFM) that final decisions are expected to applies to future electricity ACCC completes pilot reduce the amount consumers transmission determinations. The broadband performance pay for electricity in Queensland. main change is that the new RFM As a result of these reductions, monitoring and reporting allows the continuation of the customer bills are expected to fall partially asincurred approach to program on average by 6.5 per cent or recognising capital expenditure. On 11 September 2015, the $95 per household over the The RFM also provides an option ACCC released a report on a 2015-2020 regulatory period. for selecting a forecast or actual pilot that found that a program to depreciation approach to be used monitor and report to consumers AER issues final decision to roll forward the Regulatory on the quality of broadband for South Australia Asset Base (RAB), and give services could be readily effect to the AER’s Rate of return established in Australia. The On 29 October 2015, the AER guideline, allowing for an annual ACCC’s Pilot Broadband issued its final decision on the update for the return on debt. Performance Monitoring and revised revenue proposal Reporting Program involved submitted by the South Australian testing approximately 90 electricity distribution business OTHER Melbourne-based volunteers’ SA Power Networks (SAPN). The home fixed-line broadband final decision is expected to INFRASTRUCTURE connections on various reduce the total amount technologies over a three-month consumers pay for electricity in ACCC releases draft advice period. South Australia over the on amendments to the regulatory period. Customers will receive savings of approximately Commonwealth water ENERGY $203 over 2015-2016. Going charge rules forward, the AER expects there On 24 November 2015, the will be a slight increase each year AER releases 2014-15 ACCC released its draft advice in the network component of on amendments to the annual retailer performance customer bills. Over the five Commonwealth water charge and compliance reports years, this represents an average rules. The water charge rules saving of five per cent or $101. On 23 November 2015, the regulate the charges imposed on rural water users in the Australian Energy Regulator AER issues preliminary (AER) published annual reports MurrayDarling Basin. The current on the performance and decisions for Victoria rules have been in place for five years and charging practices

5 REGULATORY OBSERVER have evolved significantly over stevedoring monitoring report, that time. In December 2014, which highlights the improved acting on a recommendation of performance of the industry. ACCC decides to accredit the 2014 Independent Review of Average stevedoring prices for IPART as regulator of rural the Water Act 2007, the the industry fell for the second water charges for Government asked the ACCC to consecutive year and, in real WaterNSW conduct a review of these rules. terms, are now at the lowest level recorded by the monitoring On 23 September 2015, the ACCC releases report into program. However, the ACCC is ACCC issued its Final Decision to Darwin petrol market concerned that the existence of accredit the Independent Pricing entrenched and inadequately and Regulatory Tribunal of NSW On 23 November 2015, the regulated monopoly port (IPART) as the regulator of ACCC released its report into the operators is adding costs to the WaterNSW’s infrastructure Darwin petrol market. In economy and effectively amounts charges in the Murray-Darling comparison with the five largest to a tax on consumers and Basin. The decision will take cities (i.e. Sydney, Melbourne, exporters into the future. effect from 1 June 2016 for a Brisbane, Adelaide and Perth), period of ten years. Darwin regular unleaded retail ACCC grants exemptions to petrol prices in the two years two wheat port terminals at 2012-13 to 2013-14 were around 10 cents per litre (cpl) higher the Port of Brisbane than they had been over the On 24 September 2015, the previous decade. The ACCC ACCC issued final determinations Regulatory Observer is a regular found there were essentially two granting exemptions to publication of the Australian main reasons for the high prices Queensland Bulk Terminals Competition and Consumer and profits in Darwin: the (QBT) and GrainCorp from Commission. For editorial decrease in the number of having to comply with Parts 3 to 6 enquiries and mailing list independent retail sites, and of the Wheat Code at their Port of enquiries please contact Simon weak retail competition. Brisbane bulk wheat port Haslock terminals. The ACCC considers ([email protected]). ACCC finds waterfront that the two Brisbane port improvement continues, terminals face sufficient though new entrants face competition to warrant granting both operators exemptions from challenges certain parts of the Code when On 6 November 2015, the ACCC providing services at their released its annual container Brisbane facilities.

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