Queensland University of Technology Law and Justice Journal
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THE MAN FROM MARS WOULD HAVE
DONE BETTER: A COMMENTARY ON THE
DECLARATION AND ARBITRATION PROVISIONS
OF THE ACCESS REGIME UNDER PART IIIA OF THE
TRADE PRACTICES ACT
WARREN
PENGILLEY[⇐]
It is important, of course, to give some initial idea of what we are
talking about. What are those facilities where access issues
cause problems?
Getting the fundamental concepts right is essential to our understanding
of the problem because the law in relation to ‘essential
facilities’
and access to them has quite distinctive features. It represents an intrusion
into the basic principle of private
enterprise in that it circumscribes the
freedom of parties to deal with their property as they wish. Also it is a
concept which
does not slot into ready characterisation. Whilst it is justified
on the basis that access to certain facilities is necessary to
preserve the
competitive process, its implementation involves highly regulatory intervention.
In this commentary, I prefer to characterise
the law of access to
‘essential facilities’ as regulatory because of the nature of the
intervention involved. But it
is important to remember that the fundamental
justification for such intervention is that it is necessary to preserve the
competitive
process and, through it, competition itself.
What are
‘essential facilities’ which involve issues of access? For
introductory purposes, facilities which are seen
as meriting access regime
control are those where a facility owner possesses monopoly power in a first
market to achieve or enhance
market power in a ‘second’ market. The
second market may be either an upstream or downstream market. Without access
to
the facility, the new entrant competitor cannot access the second market
involved and, by denying facility access, the facility
owner can use its first
market monopoly power to maintain, achieve or enhance its power in the relevant
second market.
A 2004 High Court case illustrates the point. NT Power, an electricity
generator in the Northern Territory, was unable to provide
power to Darwin
customers unless it could obtain access to the power transmission grid of the
Northern Territory Power and Water
Authority (PAWA), a competitive power
generator. The High Court held that the denial of access by PAWA was a misuse
of power in
the distribution network for the purpose of preventing competition
at the customer level (the relevant ‘downstream’ second
market and a
market in which PAWA traded) and thus involved illegal conduct under s 46 of the
Trade Practices Act 1974
(Cth).[1]
The alternative method of dealing with the issue raised by NT
Power would have been under the Access Regime set up under PART IIIA of the
Trade Practices Act. In brief, this involves an application to a body
known as the National Competition Council (NCC) for a declaration that the
facility
is one of national importance and otherwise comes within the criteria
in the Act (see criteria set out in Table I in the Appendix).
If successful in
this application and if the relevant Minister approves the NCC recommendation, a
party then has a right to arbitrate
access conditions, the arbitrator being the
Australian Competition and Consumer Commission (ACCC). (For arbitration
criteria see
Table II in the Appendix.) There are appeal provisions from all
Ministerial and ACCC decisions to the Australian Competition Tribunal
(ACT) and
the criteria of evaluation are quite different in each case.
The
Declaration Process is illustrated diagrammatically in Table III in the Appendix
to this commentary. The ACCC arbitration process
follows if a Declaration is
made.
It would seem that a PART IIIA Access Order could well have been
made in the NT Power Case if that procedure had been used but the time
taken in PART IIIA proceedings would, it seems, have been far longer than that
taken
by s 46 court proceedings.
Both s 46 and PART IIIA exist in Australia as generic regimes. In the
case of a conflict between the two, there is no indication
in the law as to
which takes precedence.
Denial of access can also be created by an agreement between competitors.
This type of agreement can be dealt with as an exclusionary
provision (commonly
called a ‘collective boycott’) or as an anticompetitive arrangement.
It is thus subject to different
legislation (s 45 of the Trade Practices Act
1974 (Cth) and associated relevant sections) and, in fact, poses few of the
difficult value judgments required when unilateral access denial
is involved.
This paper deals only with unilateral denials of access.
In this paper I will discuss the Declaration and Arbitration provisions
of the Trade Practices Act’s PART IIIA Access Regime. When I refer
to ‘the Access Regime’ I refer to this aspect of it unless I state
otherwise.
This is, however, but one third of the access regime provisions set
out in the 74 sections of PART IIIA of the Act. But it is, I think, the most
important part and the area, ultimately, where the law will be made.
I
would like to commence my evaluation by looking at the issue from the viewpoint
of the Man from Mars. This creature, which figured
in a number of the
pontifications of former High Court Chief Justice and Federal Attorney-General,
Sir Garfield Barwick, was a mythical
beast who observed our laws with the
detachment which comes from not being of this world and thus not having
participated in the
political process or the lobbying that led to the gestation
and birth of the legislation in question. The Man from Mars asked, quite
simply, firstly whether the law is administratively efficient and, secondly,
whether it achieves its objective. Would that all legislation
were subject to
such a simple evaluation!
Sadly, in the case of the declaration and
arbitration provisions of PART IIIA of the Trade Practices Act 1974
(Cth), the answer to each question asked by our Martian visitor is a
resounding ‘No’. It is hopelessly inefficient and
also fails to
achieve its stated objectives.
Set out at Part I, Section C above, coupled with the Tables in the
Appendix, is an outline of how the Access Regime works. I will later deal with
the actuality
of the workings of the Regime. Initially, however, let me say
that the assertions I have made as to the answers to the questions
asked by the
Man from Mars can be justified by the application of what managers call basic
‘outcome’ tests. In the case
of the Access Regime, these
‘outcome’ tests are fairly simple and the answers obvious.
The first ‘outcome’ test is the test of international
comparison. Is there any other country in the world which has
both overall legislative control over misuse of market power (in
Australia, s 46 of the Trade Practices Act 1974
(Cth))[2] and a
generic access regime such as that in PART IIIA of the Trade Practices
Act 1974 (Cth)? The answer is
‘No’.[3]
Does this not give rise to a very strong prima facie conclusion that in
Australia, we have a classic case of overregulation? The answer is
‘Yes’.
A general access regime can be justified on the basis that it takes the
place of various specific regulatory access regimes. In virtually
every
advanced capitalist country, a common core of industries has been subject to
specific regulatory access regimes. These, worldwide,
are telecommunications,
electricity and gas transmission and airports. In some countries, railways and
ports may also be subject
to specific access regimes. These facilities are seen
to have certain monopolistic qualities which may lead to access being denied
to
a party thought to merit such access. A generic regime may be justified on the
basis that it is in substitution for specific
regulatory regimes and thus
imposes no greater regulatory burden. Indeed, it can be argued that a generic
scheme is more efficient
than industry specific schemes and that it should be
favoured for this reason.
1 What is the position in Australia?
The
answer is that the generic access code has not replaced specific access regimes
and cannot be justified on this basis. Telecommunications
are closely regulated
by specific PARTS of the Trade Practices Act 1974
(Cth).[4]
Electricity[5] and
gas[6] are
also closely regulated by specific access regimes. Airports are subject to
specific regulation under the Airports Act
1996.[7]
It is clear enough
from the above that the generic regulatory access code in PART IIIA of the
Trade Practices Act 1974 (Cth) has not resulted in any significant
abandonment of specific access codes. Australia is thus in the position that it
has specific
regulation akin to that in other advanced capitalist countries.
The need for specific access codes has not been lessened by the
PART IIIA
generic code.
The Trade Practices Act 1974 (Cth) was
based on a general principle that ‘Parliament should, as far as possible,
indicate what forms of conduct are
prohibited’.[8] This principle
was a refutation of that previously expressed in competition law where a
considerable number of criteria had to be
balanced and a Tribunal order made
prior to illegality in any practice being found. The new (1975) philosophical
drafting approach
was stated in the Second Reading Speech to be taken on the
basis that detailed drafting does not necessarily lead to certainty and
that
often detailed drafting does no more than obscure the broad purpose of a
provision. Whatever may or may not be said about PART IIIA, I doubt if anyone
would claim that it delivers certainty. Significantly, this is because the 1975
drafting philosophy has not been
adopted in the drafting of the Access Regime.
The regime’s lack of certainty is illustrated by the procedures in it to
determine
what is essentially an inter-partes dispute. Such disputes are to be
determined by criteria as broad as an access order not being
‘contrary to
the public
interest’.[9]
In order
to determine whether this test is satisfied, the public interest issue is
considered by three different bodies in two different
contexts. A decision by
the NCC or the relevant Minister on declaration criteria is no guarantee that
the ACCC will think similarly
on arbitration criteria. In arbitration
proceedings, the parties cannot necessarily confine the issues to those in
relation to which
they are in dispute. The ACCC, as arbitrator, can
‘take into account any other matters it thinks are
relevant’.[10]
The
Access Regime is the embrace of broad non-specific evaluative criteria, a
drafting technique specifically rejected as appropriate
for the drafting of the
rest of the Act.
There are other obvious areas of inconsistency with the
general provisions of the Trade Practices Act 1974 (Cth).
The Trade Practices Act 1974 (Cth) states that its purpose is
to ‘enhance the welfare of Australians’ and that it does this
‘through the promotion
of
competition’.[11] The market
in which competition is to be assessed is ‘a market in
Australia’.[12] The access
regime, for reasons
unexplained[13]
requires us to consider the impact of access in relation to a ‘market
whether in Australia or
otherwise’.[14]
There
are more examples of inconsistency which can be given but the above will satisfy
a ‘quick look’ evaluation of a
relevant ‘outcome’
test.
Perhaps the major deficiency in the Access
Regime is that it is anything but administratively efficient. Trade Practices
practitioner,
John Kench, has not unfairly described the scheme as a
‘monster’ commenting that:
Throughout its creation,
transition and implementation from fiction to fact, PART IIIA has retained an
essential characteristic of an imaginary monster: it is composed of incongruous
elements drawn into complicated cumbersome
multistage declaration, arbitration,
review and enforcement processes...involving ten sets of players... Its shape
has been driven
by trade practices legal history and Federal-State
constitutional compromise. It has become “inessential” and
“inefficient”
and is a poor heir to s 46, with most of the problems
traceable to the need to produce a politically acceptable result for acceptance
across the entire
country.[15]
A
fully fought PART IIIA proceeding could, it seems take 7-10 years.
Practitioners with whom I have discussed this issue agree with this estimate.
It is,
however, hard to be too specific because, though the regime is now 12
years old, no fully contested case has yet made it to the finishing
line.
Declaration proceedings, if fully contested, require a decision in
three separate forums (the NCC, the relevant
Minister[16]
and the ACT). This process which can take years decides only that there is a
legal right to arbitrate access conditions. But arbitration
proceedings are
before yet another body, the ACCC, on brand new criteria. Based on
telecommunications arbitrations, an arbitration
before the ACCC could take up to
two years with an appeal to the ACT likely to take a similar
period.
There are other aspects of the regime which give cause to
concern. After more than a decade of the regime’s operation, we still
do
not know whether a private iron ore railway from the Pilbara to the Western
Australian coast is within the scheme or excluded
as a production
process.[17] An initial decision
held for exclusion. A subsequent decision held for inclusion holding that the
prior judgment was ‘plainly
wrong’.[18] The case
indicates the capacity of the regime to be sidelined on legal issues. In the
second case dealing with the issue, it took
1,183 days from the date of
declaration filing before a court decision was made and such decision will
undoubtedly be appealed.*
In the meantime, the whole administrative decision
making process is on hold and the procedural regime is in a state of
constipation.
The system also allows for inter-agency squabbles which can
create even greater uncertainty and delay. It has given rise to the unedifying
spectacle of the ACCC suing the ACT in the Federal Court. The Commission did
not like a Tribunal decision by which it was bound.
So it took proceedings
against the Tribunal alleging that the Tribunal had erred in law by applying
wrong pricing and asset valuation
criteria and had thus not followed proper
process.[19]
The scope in the regime for inter-agency ‘demarcation disputes’
seems enormous and the ACCC has, it seems, found a new
way of upsetting
decisions which, in the hierarchy of things, bind it but which it does not
like.
This is not the stuff of efficient decision making.
The Hilmer Report recommended that access be based on a finding that it
was ‘essential’ for a party to enter the market
in order to
compete.[20]
More importantly, clause 6(1) of the 1995 Commonwealth/State/Territory
Competition Principles Agreement provided that the Commonwealth
would put
forward legislation for third party access to infrastructure facilities where
‘it would not be economically feasible to duplicate the
facility’. This requirement, which reiterates United States case
law[21]
has not, however, been translated into the access
regime.[22]
Whereas the United States test of not being ‘economically feasible to
duplicate’ requires that competition must be eliminated by a
refusal of access,[23] the
Australian provisions provide that access should be favourably considered where
such access would give a ‘material increase
in competition’ or where
it is ‘uneconomic’ to duplicate the
facility.[24] These tests have been
interpreted as giving rise to a favourable access evaluation so long as a
‘bottleneck is unlocked’
and the ‘competitive
environment’ is thus ‘improved’. The test is simply whether
competition will be ‘better’
with a declaration than without
it.[25]
The 1995 Co-operative
Agreement was executed on the basis that only parties eliminated from the market
would be advantaged by it.
The Act, however, requires only that a material
improvement in competition (not even a ‘substantial’ improvement)
would
be caused by an access order. These are quite different tests.
Competition may be materially increased by a party obtaining access
even though
the access seeker is not eliminated from the market if access is denied and even
if the access seeker is perfectly capable
of constructing its own facility but
chooses not to do so because it is ‘uneconomic’ compared with other
expenditure
choices.
The Part IIIA regime criteria do not match those
agreed in the State/Commonwealth Co-operation Agreement. Indeed they promote
access
where this would not be allowed under the test envisaged by that
agreement.
It can also be argued that the Access Regime has potentially
imposed a price control system on monopoly pricing not envisaged by the
Inter-Governmental Agreement. This issue is discussed at Part V, Section D
following.
‘Outcome’ tests may be differently chosen by different
commentators. The tests in Part III Sections A to E above are,
in my view,
reasonable ones for a ‘quick look’ evaluation as to whether the
access regime is a ‘success’
or a ‘failure’. Further
analysis follows but the ‘quick look’ shows the regime to be a
failure for at least
the following reasons:
• no other country in
the world has a generic coverage of misuse of market power and also a
generic access regime. A generic access regime is simply not
needed;
• the Part IIIA regime has not reduced the need for industry
specific access regimes in the case of industries generally subject
to specific
regulation;
• the access regime has inconsistent philosophy from that
in other parts of the Trade Practices Act 1974 (Cth). The market test is
different, the drafting philosophy is different;
• the access regime is
highly inefficient;
• the access regime has not implemented the agreed
principles of the 1995 State/Federal Agreement. The legislation has
substantially
lowered the access criteria agreed between the States, Territories
and the Commonwealth in 1995. It would, I believe, be an interesting
enquiry to
see how many of the States and Territories were aware of this highly significant
variation, and to pursue the path by
which the 1995 agreed test was lowered to
that enacted.
The Man from Mars would not give the Access Regime a
favourable review in the Inter-Galactic Journal of Competition Law.
But,
as they say on TV commercials these days, ‘THERE IS MORE!!’. Later
discussion canvasses a number of other areas
in which the access regime is
inadequate. Sadly there is not a great deal one can find in its praise. But
firstly we must look
at what access regimes are all about.
When looking at fundamental supply and demand and competition issues,
there is perhaps no place better to start then with the philosophy
of Adam
Smith. Smith stated:
Every individual endeavours to employ his
capital so that its produce may be of greatest value. He generally neither
intends to promote
the public interest, nor knows how much he is promoting it.
He intends only his own security, only his own gain. And he is in this
led by
an INVISIBLE HAND to promote an end which was no part of his intention. By
pursuing his own interests, he frequently promotes
that of society more
effectively than when he really intends to promote
it.[26]
The extension of
Smith’s logic is that societal good is more effectively promoted by
individuals pursuing their own ends than
by legislators and administrators, with
the best will in the world, telling people what they should do in order to
promote the overall
benefit of society.
Akin to Adam Smith’s philosophy is that one should have freedom to
deal with one’s property as one wishes unless there
are very good reasons
for this right being circumscribed. This is clearly an underlying value of free
enterprise systems. This
value restrains States in what they should or should
not do, no matter what economic theory may say to the contrary and no matter
how
picturesque the algebraic theorems, formulae, graphs and diagrams upon which any
such economic theory is based.
Extensive regulation is bad for business in that business is put to the
cost of having to make submissions to government; often on
a regular basis.
There are also delay costs in this. Excess regulation is bad for the public
because not all regulatory decisions
can be made both expeditiously and after
careful and well considered judgment. Even on a cursory evaluation, government
regulation
can at best be seen as a productive solution only to select problems.
Like medication, regulation should not become a basic norm
for an essentially
healthy free enterprise system. A major problem of regulation is keeping it to
the minimum necessary to cure
specific ills and prescribing with precision the
medication which will cure those ills.
In my view it is sad that the inherent inadequacies of regulatory
solutions are not widely enough recognised. These inadequacies
of themselves
are reason to keep regulation to a minimum and to prescribe regulatory criteria
with precision. It is almost impossible
for an outside party, having no
responsibility for the decision it makes, to prescribe an access price which is
‘right’,
‘proper’ or ‘reasonable’ in the
eyes of all parties.
General criteria can be laid down but often these
depend upon ascertaining an initial investment capital base on which to
calculate
returns. An appropriate capital base is a valuation mirage and is
certainly incapable of being ascertained with certainty. This
is because there
is always a variety of alternative bases from which to choose and no logical
reason why one is superior to another.
So, in any regulatory price dispute,
there will almost certainly also be a dispute as to the appropriate asset base
on which rates
of return are to be calculated. Should, for example, the
relevant capital base be that of:
• historical
cost;
• replacement cost;
• optimised replacement
cost;
• deprival value; or
• optimised deferral
value
or calculated on some other
basis?[27]
There are similar
problems in calculating rates of return which can be, for example, the cost of
providing the service, price capped
rates of return, efficient component return
rates and so on, all of which must have a ‘reasonable profit’
inbuilt. But
what is ‘reasonable’?
The Part IIIA Access
Regime makes the issue even more murky. It states that the ACCC can take into
account only the ‘direct costs’
of providing access to the
service.[28] Are ‘indirect
costs’ (which may be very real) ruled out and, if so, why? Can indirect
costs be taken into account as
a matter of public interest or can the ACCC take
these into account as a matter which is ‘relevant’?
A prime
problem in Access disputes involves the question of compensation for
‘investment risk’. The fear of facility
owners is that forced
access to the investment of another can be used by:
Would be
competitors who do not have the skill or drive to ‘blaze their own
path’ but instead simply wish to appropriate,
under the guise of requiring
‘fair’ access to ‘essential’ facilities, the capital
investment and business
efforts of their successful predecessors in the relevant
market.[29]
The 2001
Productivity Commission’s Review of the Access
Regime[30] concluded that
‘the focus for policy makers should not be on whether but
how best to address the new investment issue.’
The
Commission could not, however, give advice as to how this would be done because
it had been ‘unable to resolve’ the
various issues and weightings
involved. It could recommend only that the Council of Australian Governments
should initiate a process
to refine mechanisms to facilitate efficient
investment within the Part IIIA Access Regime in particular and access regimes
in general. This process, the Productivity Commission said, should be completed
to
allow legislative implementation no later than 2003. Not surprisingly
perhaps, the issue is still unaddressed. This, in my view,
is because the issue
is non-solvable on any ‘objective’
criteria.[31] Investment planners
are thus subject to considerable uncertainties as to just how their risk
investment will be allowed for in any
access order. A real disincentive to
investment is the fear of an investor that, in the case of a successful
investment, the access
regulator, with the benefit of hindsight, will conclude
that there was no real initial risk or that the risk was far lower than was
thought at the time the investment decision was made. The regulator, of course,
has the benefit of backing the winner after the
race has been run.
All of
these points make access regulation anything but a ‘scientific’
solution which is ‘fair’ to everyone.
Access Regulation is very
much a poor second best solution which impinges dramatically on property rights
and makes investment and
return on investment decisions quite
uncertain.
Because forced access sharing is so much a poor second best
solution, it is highly important that its use be constrained to those
cases
where it is the only solution to a basic identifiable and important problem
which simply cannot be solved in any other way.
In order to ascertain the downside of access, one
has to look no further than Trinko, the latest United States Supreme Court
decision
in
point.[32]
Trinko
involved access to a state telephone ‘local loop’, the denial of
which was said to limit the market entry by rivals.
Trinko noted
that:
• monopoly power, and the concomitant charging of monopoly
prices is not unlawful. The opportunity to charge monopoly prices,
at least for
a short period, is what attracts ‘business acumen’ in the first
place. It induces innovation and growth;
• firms may establish
infrastructure that renders them uniquely placed to service customers.
Compelling sharing of these economically
beneficial facilities lessens the
incentive for a monopolist to invest in them;
• sharing involves the
possibility of the ‘supreme evil of antitrust’: collusion. The
antitrust laws are aimed
to encourage independent decision
making;
• mistaken inferences from conduct are easy to draw. These can
result in false condemnations. Such condemnations are costly
because they chill
the very conduct which competition law aims to protect. The cost of
‘false positives’ counsels against
an undue expansion of
monopolisation liability;
• there is an ‘uncertain value of
forced sharing’ and difficulty in identifying its virtues;
and
• there is a difficulty in regulators identifying and remedying
conduct which is engaged in by a single firm.
The problems of a law which grants access too
easily are clear from Trinko. It is not possible here to analyse the United
States
jurisprudence in detail. Perhaps the most influential case in point,
though one not specifically adopted by the United States Supreme
Court, is the
7th Circuit decision in MCI
Communications[33]
which case concluded that, in order for an ‘essential facility’ to
be found and for access to it to be ordered, there
must
be:
• control of the essential facility by a
monopolist;
• a competitor’s inability practically or reasonably
to duplicate the facility;
• the denial of the use of a facility to a
competitor; and
• access to the facility must be
‘feasible’. A defendant will be entitled to deny access for
legitimate or technical
reasons.
The ‘feasibility’ of denial
is decided on a ‘case by case’ basis as advance identification of
all such justifications
considered in the absence of specific fact situations is
simply not possible. Limited capacity and quality control concerns are
probably
the main reasons which have been held to constitute “feasible”
reasons for denial of access where the first
three of the above criteria have
been established.
The Australian access regime was the result
of the 1993 Hilmer Committee Report and was enacted in 1995. At that time,
there was
but one s 46[34] High
Court decision.[35] The
Productivity Commission’s Independent Review of the Access Regime was
conducted in 2001, and was also conducted when there
was only one High Court s
46 decision. Since then, there have been four subsequent High Court s 46
decisions,[36] none of which could
be taken into account in the Productivity Commission review.
It is clear
from the last of these High Court decisions, the NT Power
Case,[37] that s 46 applies to
illegalise a refusal of access where a monopolist controls an essential facility
which cannot practically or
reasonably be duplicated and uses its control to
advantage its competitive position in an upstream or downstream market. It is
also
clear from Melway[38]
that a proper business justification for a refusal of access will justify such a
refusal. From
Boral,[39]
it is clear that s 46 will be interpreted in a manner which:
• does
not involve a contravention merely because an entity acquires plant and
equipment because it is desirable that the section
not be used as an excuse for
failure to
invest;[40]
• recognises
that competition laws are concerned with the protection of
‘competition’ not
‘competitors’;[41]
and
• recognises that it is the interests of competition law to permit
firms with substantial degrees of market power to engage
in vigorous
competition.[42]
In
broad analogy, the Australian law on misuse of market power is in accord with
that of the United States. Whatever may have been
the perceived position at the
time of the gestation, enactment and review of the Access Regime, in light of
the decision in NT Power[43] there
can be no doubt that s 46 deals with the politically expressed ‘notion
underlying the (access) regime’ which is
that:
access to certain
facilities with natural monopoly characteristics, such as electricity grids or
gas pipelines, is needed to encourage
competition in related markets such as
electricity generation or gas
production.’[44]
It
was precisely this issue which was before the High Court in NT
Power[45] and an analysis totally in
accord with the above objectives of the PART IIIA regime was adopted by the
Court.
Given the above objective of the Access Regime and the present
state of the s 46 law, one wonders why the PART IIIA Access Regime’s
objectives are not presently achieved under s 46.
Some specific comments on the Access Regime are in order. In discussion
of these specifics, however, what is perhaps the Regime’s
major point
should not be overlooked. This is that it does not require that a facility be
‘essential’ and ‘unable
to be duplicated’ before access
may be granted. This is an important threshold reduction from the tests in
United States (and,
it is submitted, Australian)
jurisprudence[46] and has resulted
in the Act implementing a regime far different from that agreed in the
Intergovernmental Agreement to establish
the regime.
The Act also envisages a different competition evaluation to that in the
balance of the Trade Practices Act 1974 (Cth). The reason for this has
not been credibly explained.[47]
The Act also lays down broad enquiry criteria which are philosophically
inconsistent with the approach taken to breach in the rest
of the
Act.[48]
The basic evaluative criteria in the access
regime (see Tables I and II in the Appendix) are quite inadequate. They have
been scrambled
together without great thought as to what is involved and
certainly with no attempt to give a facility owner any real idea of how
the
facility will be evaluated for access purposes. The following will illustrate
the point:
• The same criteria have to be evaluated by both the
NCC and the ACCC. There is no guarantee that the view of one regulator will
be accepted by the other. So, a favourable ‘public interest’
finding by the relevant Minister is a pre-requisite to a declaration of a
facility and arbitration by the ACCC as to terms of access
to it. Can the ACCC,
on the criteria set out for it, re-assess an issue previously determined by the
Minister? Indeed, one can
foresee potential litigation here. Should the ACCC
seek to re-assess, say, the public interest criteria, it is arguable that it
could be ‘estopped’ from doing so as the Minister had already
determined the same issue and a favourable Ministerial
finding was a
pre-requisite to the ACCC having any jurisdiction to arbitrate the matter.
• A similar position to the above applies in relation to
differently worded criteria. In declaration proceedings, the NCC and the
relevant Minister have to consider, amongst other things, whether access can be
provided
without undue risk to human health or safety.
• The NCC
says in its Declaration Guide[49]
that the above assessment may involve an evaluation of the safety of gas
transmission lines or airport facilities. The ACCC in arbitration
proceedings
is to consider ‘the operational and technical requirements necessary for
the safe and reliable operation of the
facility’. Are these two things
the same? Why do they have to be considered twice? In the case of a
disagreement between
the two regulatory bodies, who wins?
• The selective specification of criteria necessarily means
that some criteria are omitted from the ‘shopping list’ and
some on
it are irrelevant to particular cases. No-one but a clairvoyant could
contemplate all cases where ‘business justification’ might be a
valid ground to deny
access. The Regime has chosen a few randomly selected
grounds and, because of this, has necessarily had to include ‘catch
all’ public interest criteria. The more logical step would be to allow an
adjudicator a broad discretion to determine whether
grounds for denial are
legitimate rather than attempt to specify those grounds in detail. A general
safeguard could be added that
a business justification is not a valid reason for
access denial unless there is no less restrictive alternative available, as is
the case in the United States.[50]
• The result of the public interest criteria appearing in the
relevant tests is that access applications can become a type of roving
Royal
Commission. The NCC, for example, says that public interest matters it may
consider in access applications include:
- social and equity
considerations;
- employment and
investment growth; and
- the
interests of consumers generally.
These are policy issues. Access is
about competition. Access applications should not be turned into roving Royal
Commissions on
the economy.
• Because of a confusion of
criteria, some criteria are evaluated by the wrong regulatory body. In the
United States, probably the most common reason pleaded to deny access when it
would otherwise be granted is that there is
‘business justification’
for such denial. Yet under the Access Regime this cannot be pleaded in
declaration proceedings.
A facility holder wishing to make this plea should be
able to do so at the first available opportunity and not be required to suffer
NCC, political and ACT evaluations before having a right to plead its basic
defence.
• The criteria are not mutually exclusive. An
access order may, for example, be able to be provided without undue risk to
human health or safety but only if certain procedures
are adopted. These may
involve significant expenditure. The basic issue of health and safety has to be
considered by the relevant
Minister in declaration proceedings. Questions of
expenditure, or willingness to engage in it, are, however, not matters for the
NCC or the relevant Minister in declaration proceedings but matters for the ACCC
in subsequent arbitration proceedings. Artificial
segmentation of these issues
means that they cannot be determined by anyone as a totality.
One can
conclude only that the selectivity of criteria causes considerable difficulty,
that the division of regulatory adjudicative
functions is far from satisfactory
and that the artificialities involved can result in confusion and perhaps in
some cases in relevant
considerations not being considered at all. One
adjudicative body and one set of evaluative criteria would seem to be an obvious
solution. Such a step would also be a considerable help, one would think, in
the overall efficiency and smooth running of the regime.
As is apparent from the comments in Part I
above, access regimes aim to correct the position where a monopolist can
take advantage of a monopoly position in one market by denying
facility access
to a competitor, actual or potential, which wishes to compete against it in
another. It is axiomatic from this that
one competitor is denying access to
another competitor, actual or potential. Absent a denial of access to a
competitor, there is
no competition issue.
To take an example. If I
own a bridge (assuming that the bridge is a monopoly facility) and am not
engaged in an ‘upstream’
or ‘downstream’ transport
market, I am not disadvantaging a competitor in a second market by charging high
prices for
access to that bridge. This is a simple supply and demand situation.
My incentive to maximise profit from the bridge is to have
as many people as
possible use it at the price I set. This is a decision I take to maximise
usage, not to deny it.
Similarly but not identically, if I am a railway
company not engaged in telecommunications and a telecommunications company would
like to buy land I own adjoining my railway line in order to lay a
telecommunications cable, my incentive, if I wish to sell the
land, is to obtain
the best price for it. I am merely doing what all vendors do. This is a
vendor/purchaser relationship and, regardless
of the fact that potential buyers
may regard my asking price as “exorbitant” and only possible because
of my ‘monopoly’,
it has nothing to do with advantaging my position
vis-à-vis a competitor.
Neither the bridge usage nor the rail
land sale scenario involve my taking advantage of a monopoly market to
disadvantage my competitor,
actual or potential, in another market. However, at
least the bridge example (and possibly both examples) is within the Access
Regime
as it is currently interpreted by the NCC.
Access regimes are
aimed at protecting the competitive process and to provide access to facilities
when denial of such access brings
about the breakdown of that process. Access
regimes are not aimed at correcting individual hardships which may be suffered
because
an individual believes he or she is paying too much for a product. This
is a question of supply and demand or, if the government
feels there is reason
to do so, for legislative intervention by way of price control measures.
Owners of non-integrated facilities have no incentive to use market
power, if it exists, to reduce the level of service offered.
As stated in the
Sydney Airport Freight Handling
Case,[51]
in the case of non-integrated monopolies, ‘the principal competition
concern is not access to the facility but rather the prices
which the owner of
the facility charges for access’ or, alternatively, the issue is
‘access itself’. The Tribunal
also noted that where the owner of
the facility is not competing in upstream or downstream markets, it usually has
little incentive
to deny access.
Submissions were put to the Productivity
Commission that a non-integrated facility owner, even if having no reason to
deny access
to facilities, should still be covered by PART IIIA because it would
have an incentive to exploit market power when setting the price
and conditions
of access.[52] Perhaps a
non-integrated monopolist would have such an incentive but this view denies a
monopolist the right to set its prices and
maximise its profits in doing so. A
monopolist, like everyone else, has the right to profit maximise without, by
doing so, breaching
competition
law.[53]
On the above issue,
the NCC has opined that:
provided the infrastructure operator is not
vertically integrated (affiliated) with upstream/downstream business interests,
the public
policy issue is about dealing with monopoly pricing. An access
regime is one means of restraining prices and maintaining efficient
levels of
output in these
situations.[54]
This
brings the bridge example previously given within the Access Regime.
The
Productivity Commission recommended that the Access Regime should
‘continue to cover eligible services provided by both
vertically
integrated and non-integrated
facilities’.[55] The access
regime, as it is currently administered, has thus introduced a form of price
control not justified to protect the competitive
system itself and not in
accordance with the policy of its enactment, which policy said nothing about the
control of monopoly pricing
decisions.
Those who believe in conspiracy
theories could well see the Access Regime as being the introduction of price
control by stealth.
Consideration of the sort of access law we want is determined not only by
black letter law but also by the adjudication of rights
under that law. The
options are amongst:
• courts;
• a regulatory authority;
• arbitrators; and
• the government.
The Access Regime
has them all. There are three regulatory decision making authorities [The NCC,
the ACCC and the ACT (though the
latter may be regarded as a quasi court)]. The
ACCC has an arbitration function as does the ACT on appeal. There are
potentially
nine ministerial decision
makers.[56] The Federal Court is
involved in appeals on questions of law. Different bodies decide different
issues on different criteria.
A cursory evaluation of this structure must
indicate a managerial disaster waiting to happen. Efficiency has, therefore,
not surprisingly,
not been an outstanding feature of the Access
Regime.[57]
Courts are regarded as not vulnerable to outside influence, as having
strict procedural and substantive safeguards and as making decisions
on a
reasoned and impartial basis. Consistency of approach and adherence to
precedent principles are also highly regarded factors
in court
evaluations.
Courts as dispute solvers thus have high credibility and
acceptance. However, they have downsides. These are perceived primarily
as
being:
• an inability to set and monitor prices and access terms
when these must necessarily be part of an access order;
• the inability
to give remedies other than the traditional remedies of damages and
injunction;
• the inability, by virtue of their role, to gather their
own facts and evidence and the necessity, therefore, to rely only
upon evidence
submitted by parties to the dispute; and
• a perceived lack of
commercial expertise. (This may be put from the subjective view of the
proponent. I am not sure that
an economist employed by a regulatory agency has
any better capacity than a judge to appreciate a complex engineering issue.
Each
necessarily depends upon outside experts.)
The advantages of regulatory authorities as
adjudicators are that they are perceived as having commercial expertise and they
do have
staff to collect evidence. The problem arises when the regulator is
also the adjudicator and when the regulator is perceived as
having agendas
outside those of the issue directly before it.
The ACCC, being the prime
regulator in the Access Regime, was seen by many in submissions to the
Productivity Commission of Inquiry
Report to be in a number of areas less than
objective in making its adjudicative decisions. Not unexpectedly, a major
complaint
was delay and the attendant costs involved in this. But the
criticisms went deeper than this. They
included:
• inconsistency;
• subjective
judgments;
• cherry picking methodologies;
• use of false
benchmarks and asymmetric approaches such that consistency could not be
maintained into the
future.[58]
Submissions made
to the Productivity Commission also noted that regulators
had:
• formidable problems dealing with cost
estimations;
• problems dealing with estimations made as the basis for
investment decisions; and
• problems dealing with rapid technological
change.
No doubt these problems confront the judiciary as well though
criticisms of the judiciary in this regard do not seem to be as vehement
as
those of regulatory authorities. Probably this is because the judiciary is,
whatever its faults, seen as impartial and as having,
in its decision making, no
political, social or economic ‘agenda’.
Submissions to the
Productivity Commission noted ‘regulatory capture’ in ways inimical
to the public interest. This was
said to take a number of forms.
Regulators:
• may be reluctant to admit prior
errors;
• may tend to bring their own values and predilections to the
decision making process;
• could focus too heavily on the short term
interests of consumers rather than identifying the wider picture. One
submission
stated:
given the primary role of regulators as
‘consumer advocates’, they have applied (their) discretion with the
primary objective
of ensuring lower reference tariff prices for consumers with
little – if any – regard to the implications of their actions
on the
term development needs for energy infrastructure such as gas transmission
pipelines.[59]
The above observations are made to illustrate the types of problems seen by
regulated industries in the regulatory decision making
process to which they are
subject. The comments are not made to denigrate the ability of regulators for,
as has been previously
noted[60]
many regulatory problems, by their very nature, are incapable of an
‘objective’ solution acceptable to all. This, indeed,
is of itself
a strong reason why access orders should be kept to a minimum and used as a
pro-competitive tool only where the competitive
process itself is in danger of
collapse without an access order being made.
A major problem perceived by
regulated industries in regulatory decision making was that of actual or
perceived regulatory bias.
Whatever the merits of the industry views, I believe
that no adjudicative system can enjoy support if those subject to it see actual
or a perceived bias in those adjudicating their rights and obligations. This
industry perception is of itself a major reason for
circumscribing the amount of
regulatory decision making in the access regime.
Arbitration by a party appointed by disputants is a highly attractive
dispute settlement tool. The essence of commercial arbitration
is, however,
that the parties choose the arbitrator (or there is some pre-dispute default
arrangement for doing so in the event of
non-agreement) and the parties
determine the issues to be decided. In the case of the Access Regime, the term
‘arbitration’
is somewhat misused. The ACCC is, by law, the
arbitrator of access terms. The parties do not determine the agenda. This
agenda
is determined by the legislation and permits the arbitrator to take into
account, in reaching its decision, ‘such other matters
that it thinks are
relevant’.[61]
Arbitration,
as provided in the Access Regime, is thus not an independent means of
adjudication. The various strengths and weaknesses
of Regulators as
adjudicators (see Part VI, Section C above) are totally applicable to the
arbitration provisions of the Access Regime.
The Access Regime provides for Ministerial decision making (or more
accurately for the possibility of nine Ministers making
decisions[62]). The present
position is that the relevant Minister can make a positive decision or do
nothing. If the Minister does nothing,
the application fails. The ‘do
nothing’ option is, by the very nature of politics, highly attractive to
politicians
as it preserves the status quo. One would think that if the
relevant Minister does nothing, the default position should be that
the NCC
recommendation is to be implemented. As the relevant Minister’s decision
can be appealed to the ACT, intermediate
political adjudicative intervention
seems to have no effect other than to either ‘buck pass’ or delay
the declaration
process. Whatever its prior justification as a method of
forging State/Federal/Commonwealth agreement on the law, there seems no
present
case for preserving the Ministerial decision making function or for injecting
politics into a decision making process which
should be based solely on the
merits.
It is not intended here to put into Chapter
and Verse the adjudicative system which would suit an access regime. Clearly
the present
system merits change. In principle, one would like to see a system
which embodied judicial impartiality with administrative back
up in any areas
where court processes are inadequate.
In my view, this would involve the
court determining on specifically stated criteria such as those which have found
some favour in
the United
States:[63]
• whether a
prima facie case for access has been made out; and
• whether there is a
‘business justification’ made out whereby access can be
denied.
If an issue arises with which the court believes it cannot deal
(because, say, it involves setting of an access price or it involves
continuous
supervision which the court cannot perform), this issue could be delegated to an
administrative regulatory authority.
This authority would function under court
auspices. It should not be the ACCC because of perceived bias seen in the
adjudicative
reasoning of that body. It could be the Trade Practices Tribunal
or members of it, some of whom might be appointed for this purpose.
It could be
someone totally external. It could perhaps even be Commissioners of the ACCC
specifically appointed as ‘Judicial
Commissioners’ and having no
administrative or policy responsibilities.
It may be that all decision
making issues under the Access Regime could be put in the hands of the ACT,
somewhat revamped to fulfil
this function. This too would achieve an
appropriate independence of decision making and may well have the administrative
plus of
keeping all proceedings under one roof – a roof which can be seen
as genuinely independent of the policy role served by the
ACCC.
It is obvious that the Access Regime and s 46 of the Trade Practices
Act 1974 (Cth)[64] each cover
substantially similar territory. Indeed, in all advanced countries other than
Australia, there is no generic access regime
and access issues in industries
other than those subject to specific regulation are covered by statutory
provisions akin to s
46.[65]
The writer’s
view is that s 46 is a far superior law covering access regimes, though perhaps
the judicial machinery may need some revamping to deal more adequately
with the
issues.[66]
Regardless of the
above, what is clear is that there is potential for conflict between s
46[67] and PART IIIA. In view of
the fact that both laws are generic, a resolution of this conflict is essential.
Which law is to triumph?
The Hilmer Report recommended that the Access
Regime should have precedence and that the Access Regime should exclude any
right to
bring an action in relation to refusal to provide access to a declared
facility under the misuse of market power provisions of the
Act’s
competitive conduct.[68]
The
legislation implementing Hilmer did exactly the
opposite.[69]
We are thus
faced with the possibility of dual obedience and the problem of precedence in
the case of conflict. This could easily
have been avoided.
The Hilmer Committee
Report,[70] upon whose findings the
generic access regime was enacted, recommended the same access rules,
irrespective of facility ownership.
This was a conclusion reached as a matter
of principle. However, the Hilmer Report was unable to identify any services to
which
its recommended access regime might apply apart from those traditionally
supplied by government monopolies and which had significant
government
involvement either as owner or extensive regulator.
Given that s 46 is a
general provision illegalising misuse of market power, the inability of the
Hilmer Committee to identify any privately owned industry to which the
access regime would be applicable indicates to me that s 46 is adequate and that
there is no justification at all for the extension of the PART IIIA regime to
privately owned facilities. The need for some kind of access regime for
government owned facilities was demonstrated to
the satisfaction of the Hilmer
Committee. This need was even more apparent, given that at the time Hilmer was
considering the matter
State conducted business activities were totally exempt
from the operation of the Trade Practices Act 1974 (Cth) and that
it was primarily these businesses where access was the greatest problem. Hilmer
recommended that the State business
exemption be changed, and it was.
No
doubt the access regime should apply not only to government businesses but also
to government subsequently corporatised and privatised
institutions, which
could, no doubt, be identified reasonably easily. Government may well see its
role in business as being one
of fostering access to its facilities. No-one can
complain at government taking this philosophical attitude to its business
activities.
Given, however, the presence of s 46 and the inability of Hilmer at
the time (1993) to identify a single private enterprise activity to which the
access regime might
be applied, there simply has not been a proven case for the
application, industry wide, of the access regime.
Any review of the
Access Regime should also review whether it needs to apply to all enterprises or
only to those of a governmental
nature.
From all of the foregoing, it is obvious that the Man from
Mars,[71] seeking only the
achievement of a stated legislative objective in an administratively efficient
manner, could have done much better
in any legislation he might have chosen to
enact.
In considering administrative efficiency, the Man from Mars would have
done at least the following:
• made the Access Regime consistent
with the rest of the Trade Practices Act 1974 (Cth) in
philosophical approach and in relation to the competition test to be
evaluated;[72]
• created an
arrangement which did not have obvious administrative difficulties. In this
regard, he would not have made the
scheme subject to a variety of tests
adjudicated by different regulatory bodies – a scheme necessarily subject
to delays and
inter-agency demarcation
disputes.[73] He would not have
required the same criteria to be evaluated by two separate
bodies[74] and would have chosen a
clear adjudication concept after a detailed evaluation of the merits of the
various adjudicative options
available.[75] He would have
created criteria of access which gave rise to the omission of no important
matters.[76] He would not have
failed to conceptualise criteria adequately and accurately thus ensuring that no
criteria were evaluated by the
wrong regulatory
body.[77] He would have ensured
that evaluative criteria were mutually
exclusive.[78] Any system
introduced by the Man from Mars would not be, as the access regime is, an
evaluation of such wide criteria that it is,
in fact, a type of roving Royal
Commission;[79]
• prescribed
in order to give clarity and certainty whether in cases of conflict, the access
regime or s 46 covering misuse of market power was to be the law to be
obeyed.[80]
The Man from Mars would also look beyond administrative efficiency into
philosophy and ask a fairly simple question – ‘What
are we trying to
achieve through an access regime?’. He would recognise
that:
• societal and competitive benefit is achieved by parties
acting in their own self
interest;[81]
• the right
of freedom to deal with property is not one which should be interfered with
except for highly compelling
reasons;[82]
• whatever the
wisdom of regulators, regulation, because of its inherent difficulties,
necessarily is very much a ‘second
best’
choice.[83] Further, there are
considerable downsides in regulatory solutions as they necessarily involve curbs
on business
incentives;[84]
• any
problems to be addressed have to be defined with specificity. This evaluation
would lead to the conclusion that regulation
should be kept to the minimum
required to cure specifically defined
ills.[85] The basic ill to be cured
by an access regime is that, in certain cases, the competitive system will not
work without access being
ordered. As stated above, regulatory solutions have
significant downsides and are very much ‘second best’ solutions.
They must, therefore, be applied sparingly and only where the normal competition
process is unable to function without them. This
means that they should be
applied to cure problems in the competition system and should be applied for the
benefit of ‘competition’
not
‘competitors’.[86] The
Access Regime is not a solution to high monopoly pricing unless a monopolist
uses its market power to disadvantage a competitor
in a second market. The
problem of high monopoly pricing is not a competition
issue.[87] Similarly the
competitive process has not broken down simply because a party cannot obtain
access. An access order is appropriate
only if an entity is unable to duplicate
the facility in question, is precluded from the market and, because of this,
competition
is
eliminated;[88]
• only if a
competitor, actual or potential, is eliminated from the market is the
competitive process negated. The Access Regime
does not provide to this
effect;[89]
• the
State/Commonwealth Agreement explicitly provided that ‘essentiality’
of access was its basic rationale. Yet
this did not get translated into
legislation;[90]
• the
objectives of the Act have always been put in terms of protecting a competitor
of an entity owner and never as a method
of price control. On the
interpretation of the Act at this stage, this too is not how the Act
works.[91]
The Man from Mars might reasonably also look at some outcomes of the
access regime in terms of performance and scope. No other country
in the
advanced world has both a generic access regime and a generic provision covering
misuse of market power. The Man from Mars
might well ask ‘Is this not a
prima facie case of overregulation?’ The answer to this question must
clearly be ‘Yes’.[92]
He might not unreasonably conclude that any generic scheme should perhaps be
limited only to ‘governmental type’ industries.
After all, the
Hilmer Report could identify governmentally operated facilities (and presumably
those of industries of a governmental
nature subsequently privatised or
corporatised) as being the only ones where an access regime could be seen to
deliver benefit.[93]
The
Man from Mars might also ask if the generic Access Regime has limited specific
industry regulation in Australia or is there still
in Australia specific
industry regulation in those industries where such regulation is common
overseas. Clearly the generic regulatory
regime has not reduced specific
regulation at all.[94]
In
short, the Man from Mars could well conclude that the access regulation scheme
has been cast too widely and no real attempt has
been made to determine where it
may be needed.
I believe that an evaluation along the above lines would
show that s 46 of the Trade Practices Act 1974 (Cth) covering
misuse of market power[95] and
delimiting with specificity those factors necessary to preserve the competitive
process[96] would be adequate
protection in all but specifically regulated industries and ‘governmental
type’ industries. This is
especially so in light to the High Court
decision in NT Power.[97]
Sadly, it is not possible to find great virtue in the Access Regime. It
deserves overhaul. This, no doubt, will be a drawn out procedure.
The first
evaluation of the Act was in
2001.[98] The legislation
implementing this review was enacted in
2006.[99] Thus legislative
amendment of legislation having its gestation in 1993 with the Hilmer Committee
Report is, on past performance,
a 13 year process. The Productivity
Commission’s 2001 Report was delivered when only one High Court s 46 case
had been determined. Whilst the inadequacy of s 46 was considered a major
reason for the enactment of the Access Regime, it is time to consider whether
this rationale is still valid
and, if so, to what
extent.[100] It is time to start
a second review now in view of the inadequacies of the Access Regime, the
changed s 46 jurisprudence and the fact that a review, if commissioned in 2007
will not, on present form, result in any legislative action until
2020.
It should be noted that, if my criticisms are considered extreme or
if my view that the Access Regime should be pruned back is considered
extreme, I
am in good company. Those responsible for the recommendation to enact the
access regime and those responsible for reviewing
it are by no means implacable
in their views. The Hilmer
Committee[101] commented that the
Access Regime should be applied sparingly. The Productivity Commission’s
Review of the Regime noted that,
generally, competitive pressures are likely to
inhibit the ability of facility owners to restrict access and that this
‘reinforces the need not to dismiss the “no regulation”
option particularly given the likely costs of remedial
intervention.’[102]
A review of the Access Regime would demonstrate that it has many defects.
A number of these have been highlighted in this Paper.
The only conclusion is
that:
‘The man from Mars could have done much
better.’
Perhaps the next review of the access regime will evaluate
it in terms of objectives to be achieved and the efficiency in doing this
rather
than as an issue of Federal/State politics. Undoubtedly, the political issues
concerned in the Act’s gestation resulted
in the
monster[103] which is the current
regime. Now that the scheme is in operation and States have been
‘compensated’ for their ‘sacrifices’,
we may be able to
get around to the real issues of what an access regime is all about and the
extent to which it is needed.
APPENDIX
TABLE I
[Refer
Par 1.3]
|
Matters to be taken into account by National Competition
Council
before recommending declaration of service∗ [Trade Practices Act s.44G(2)]
|
||
|
44G (2) The Council cannot recommend that a service
be declared unless it is satisfied of all of the following matters:
(a) that access (or increased access) to the service would
promote a material increase in competition in at least one market (whether
or
not in Australia), other than the market for the service;
(b) that it would be uneconomical for anyone to develop
another facility to provide the service;
(c) that the facility is of national significance, having
regard to:
(i) the size of the facility; or
(ii) the importance of the facility to constitutional trade
or commerce; or
(iii) the importance of the facility to the national
economy;
(d) that access to the service can be provided without undue
risk to human health or safety;
(e) that access to the service is not already the subject of
an effective access regime;
(f) that access (or increased access) to the service would
not be contrary to the public interest.
|
||
|
|
*NOTE NCC recommendations are subject to
Ministerial decision on essentially the same criteria [Trade Practices Act
s.44H(2); s.44H(4)].
|
|
|
|
||
TABLE II
[Refer Par 1.3]
|
Matters that the Commission must take into account in
arbitration proceedings∗
[Trade Practices Act s.44X]
|
|
44X (1) The Commission must take the following
matters into account in making a determination:
(aa) the objects of this Part
(a) the legitimate business interests of the provider, and
the provider’s investment in the facility;
(b) the public interest, including the public interest in
having competition in markets (whether or not in Australia);
(c) the interests of all persons who have rights to use the
service;
(d) the direct costs of providing access to the
service;
(e) the value to the provider of extensions whose cost is
borne by someone else;
(ea) the value to the provider of the interconnections to
the facility whose cost is borne by someone else;
(f) the operational and technical requirements necessary for
the safe and reliable operation of the facility;
(g) the economically efficient operation of the
facility;
(h) the pricing principles specified in section
44ZZCA.
(2) The Commission may take into account any other matters
that it thinks are relevant.
|
TABLE III
[Refer Par 1.3]
|
THE DECLARATION PROCESS
v
(Note: This Table does not cover the arbitration process subsequent to declaration) * |
|
* If negotiations fail in
relation to a declared service, the ACCC arbitrates the terms and conditions of
access. The ACCC’s
arbitration decision is subject to appeal to The
Australian Competition Tribunal. Experience in relation to arbitrations in
the telecommunications industry is that they may take up to 2 years to complete.
For
arbitration criteria see TABLE II.
|
|
v At
any stage, questions of law may be referred to the Federal Court for
determination.
|
[⇐]
Special Counsel, Deacons; Professor Emeritus, The University of
Newcastle; formerly a Commissioner of the Australian Trade Practices
Commission.
The law in this Paper is written as at 31 December
2006.
[1]
NT Power Generation Pty Ltd v Power and Water Authority [2004]
HCA 48. The issue was decided under s 46 of the Trade Practices Act
1974 (Cth) (illegalising the misuse of market power). In broad terms, s
46 of the Trade Practices Act 1974 (Cth) illegalises parties taking
advantage of a substantial degree of market power for the purpose of eliminating
or substantially
damaging a competitor, preventing market entry or deterring or
preventing competitive conduct.
[2]
In broad terms, s 46 of the Trade Practices Act 1974 (Cth) illegalises
parties taking advantage of a substantial degree of market power for the purpose
of eliminating or substantially
damaging a competitor, preventing market entry
or deterring or preventing competitive
conduct.
[3] Commonwealth,
Review of the National Access Regime, Productivity Commission Inquiry
Report No 17 (2001) 34.
[4] PART
XIB of the Trade Practices Act 1974 (Cth) contains some 86 sections
governing telecommunications competition conduct and record keeping. In
addition to this PART XIC of the Act has some 142 sections covering
telecommunications access.
[5] In
December 1998, legislation was enacted in NSW, Queensland, South Australia,
Victoria and the ACT to create a national electricity
market. The regime
created by this legislation was aimed at ensuring open access to the
transmission and distribution networks in
those States. Subsequently Tasmania
joined the scheme. The sponsoring jurisdictions established a company limited
by guarantee
to administer the National Electricity Code established by the
legislation. Subsequently, it was decided that administration of
the Code
should be taken over by an Australian Energy Regulator. PART IIIAA of the
Trade Practices Act 1974 (Cth) establishes that
body.
[6] The regulation of gas
and access to gas pipelines is complex to say the least. A National Pipeline
Access Agreement was signed
between the Commonwealth, State and Territory
Governments on 7 November 1997. Pursuant to this agreement, South Australia
enacted
the Gas Pipelines Access (South Australia) Act 1997. This set
out in Schedules 1 and 2 what is termed ‘the Access Law’. Other
States and Territories and the Commonwealth
subsequently enacted legislation
applying the principles of Schedules 1 and 2 of the South Australian legislation
in their own jurisdictions.
Functions were conferred on the Australian
Competition & Consumer Commission (ACCC). An appeal body from ACCC
decisions was
set up which, according to circumstances, may be the Australian
Competition Tribunal. Under the legislation, each relevant service
provider is
to submit an ‘Access Arrangement’ to the relevant regulator for
approval and is also to submit applicable
Access arrangements information. Not
surprisingly, this prolix set of arrangements has led to litigated demarcation
disputes between
agencies – see ACCC v ACT [2006] FCAFC 83. See
below n 19 in relation to further comment on this case.
[7] The Airports Act 1996
PART 13 provides for access to, airport sites and demand management of, relevant
airport sites. Section 193 of the Act provides that PART
IIIA of the Trade
Practices Act 1974 (Cth) has effect subject to a number of Divisions of PART
13 (basically those relating to the administration of airport capacity). There
are also a number of other provisions of the Act involving
the ACCC in airport
performance management.
[8] Trade
Practices Bill 1974 (Cth): Second Reading Speech, Hansard (H of R) 16 July 1974,
226.
[9] Trade Practices Act
1974 (Cth) s 44G(2)(f) re declaration considerations (NCC) and s 44H(2)(f)
(Minister). This issue is also considered in arbitration proceedings
[Trade
Practices Act 1974 (Cth) s 44X(1)(b) (ACCC consideration)]. All decisions
are subject to an appeal to the Australian Competition
Tribunal.
[10] Trade
Practices Act 1974 (Cth) s
44X(2).
[11] Trade Practices
Ac 1974t (Cth) s 2.
[12]
Trade Practices Act 1974 (Cth) s
4E.
[13] The 1995 House of
Representatives Explanatory Memorandum to the Competition Policy Reform Bill
[182] states that some access regimes
could help Australian companies gain
access to overseas markets. No examples were given. The legislation, as
enacted, is, however,
much wider than this. If overseas market access to
Australian companies was the legislative intention, this could easily have been
specifically stated.
[14]
Trade Practices Act 1974 (Cth) s
44G(2)(a).
[15] John Kench,
‘PART IIIA – Unleashing a Monster’ in Williams (Ed) The
Twenty Fifth Anniversary of the Trade Practices Act (2001), 122. The ten
sets of players identified by Kench are:
1. State and Territory
Governments;
2. facility owners, public and private;
3. applicants for
declaration;
4. initial users;
5. subsequent users;
6. the
Commonwealth;
7. the NCC;
8. the ACCC;
9. the Australian Competition
Tribunal; and
10. the Federal
Court.
[16] In the case of
infrastructure owned by a State or Territory, the designated Minister is the
State Premier or Territory Chief Minister.
Responsibility for all other
decisions lies with the Commonwealth Treasurer. Thus it is necessary to retain
nine centres of administrative
expertise if Ministerial decisions under the
Access Regime are to be competently made. If the relevant Minister simply does
nothing
(an appealing option in politically controversial areas), the Minister
is deemed to have refused the declaration notwithstanding
the NCC’s
recommendation that it be granted. An applicant for declaration has then to
start anew in the Australian Competition
Tribunal. Not surprisingly, political
opinions have shown little consistency and this area is but another example of
the point that
Australia’s nine regulatory clocks rarely chime in
unison.
[17] See definition of
‘services’ in s
44B.
[18] Middleton J in BHP
Billiton Iron Ore Pty Ltd v The National Competition Council [2006] FCA 1764
held that the relevant railway line was not excluded stating that Kenny
J’s decision in Hamersley Iron Pty Ltd v National Competition
Council [1999] FCA 867 to the contrary was ‘plainly wrong’ [98].
* [Author’s note: Since the writing of this commentary, an appeal
from the 2006 Billiton decision has been lodged. This appeal
has been set down
for hearing on 30 April
2007.]
[19] Australian
Competition & Consumer Commission v The Australian Competition Tribunal
[2006] FCAFC 83. This case was brought in relation to the application of the
gas regulatory regime (for details see above n 6) which is akin in many ways to the code
certification regime under PART
IIIA.
[20] National Committee
Policy, Commonwealth, Report of the Independent Committee of Inquiry (The
Hilmer Committee Report) (1993)
251.
[21] Alaska Airlines Inc
v United Airlines Inc 948 F 2d 536 (9th Cir CA)
1991.
[22] In declaration
proceedings, the NCC is required to take into account; amongst other
things:
• that access...would promote material increase in
competition...(Trade Practices Act 1974 (Cth) s 44G(2)(a));
and
• that it would be uneconomical for anyone to develop another
facility to provide the service (Trade Practices Act 1974 (Cth) s
44G(2)(b)).
[23] Alaska
Airlines Inc v United Airlines Inc 948 F 2d 536 (9th Cir CA)
1991.
[24] See Trace
Practices Act 1974 (Cth) s 44G(2)(a)(above n 22) and s 44G(2)(b)
(above n 22).
[25] Re: Review
of Declaration of Freight Handling Services at Sydney International Airport
[2000] ACompT 1; (2000) ATPR
41-754.
[26] A Smith,
The Wealth of Nations (W Strahan & T Cadell,
1776).
[27] See Australian
Competion and Consumer Commission, ‘Access Undertakings; A Guide to Part
IIIA of the Trade Practices Act’
(1999).
[28] Trade Practices
Act 1974 (Cth) s
44X(1).
[29] A Kezshom,
‘No Shortcut to Antitrust Analysis: The Twisted Journey of the
“Essential Facilities” Doctrine’
(1996) Columbia Bus L
Rev 1, 2.
[30] Above n 3,
281. Present writer’s
emphasis.
[31] The government
response to the Commission’s recommendation was that it would consider the
context of industry specific regimes.
This indicates a ‘case by
case’ approach which is, of course, contrary to the concept of an Access
Code which applies
across the
board.
[32] Verizon
Communications v Law Offices of Curtis V Trinko LLP [2004] USSC 4; 540 US 398
(2004).
[33] MCI
Communications v AT&T Co. [1983] USCA7 822; 708 F2d 1081 (7th Cir
1983).
[34] For a brief outline
of s 46 see above n 1.
[35]
Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company
Limited [1989] HCA 6; (1989) ATPR
40-925.
[36]
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA 13, (2001);
Boral Besser Masonry Pty Ltd v ACCC [2003] HCA 10; (2003) ATPR 41-915; Rural
Press Limited v ACCC [2003] HCA 75, (2003); NT Power Generation Pty Ltd v
Power and Water Authority [2004] HCA
48.
[37] See above n
1. See general
outline of the facts and holdings in this case at Part I, Section B of
this article.
[38] Melway
Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA
13.
[39] Boral Besser Masonry
Pty Ltd v ACCC [2003] HCA 10; (2003) ATPR
41-915.
[40] Boral
Besser Masonry Pty Ltd v ACCC [2003] HCA 10; (2003) ATPR 41-915,
46,688.
[41] Ibid.
[42] Ibid.
[43] NT Power Generation Pty
Ltd v Power and Water Authority [2004] HCA 48. See also details of case set
out in Part I, Section B.
[44]
Hansard (H of R), 30 June 1995,
2755.
[45] NT Power
Generation Pty Ltd v Power and Water Authority [2004] HCA 48. See also
details of the case set out in Part I, Section B.
[46] See Part III, Section E,
Part IV, Section F and Part IV, Section G of this article.
[47] See Part III, Section C.
The only possible explanation is set out above n
13.
[48]
See Part III, Section C.
[49]
National Competition Council, Guide to the National Access Regime (Part IIIA
of the Trade Practices Act 1974) (2006) 114
<http://www.ncc.gov.au/publication.asp?publicationID=166 & activityID=32>
at 19 April 2006.
[50]
Phonetele Inc v American Tel & Tel Co 644 F2d 716 (9 Cir 1981). The
onus of proof in this regard is on the defendant. Frequently less restrictive
alternatives do exist. See cases
cited in Mozart Company v Mercedes 833
F2d 1343, 1349 (9 Cir 1987).
[51]
Review of Declaration of Freight Handling Services at Sydney International
Airport [2000] ACompT 1; (2000) ATPR 41-754. Concern could be felt if exclusivity
arrangements grew up between parties which were affiliated. See, for example,
submissions
to Productivity Commission cited at p 52 of its Report (above n
3). However, these
arrangements would, it is submitted, fall for evaluation under s 46 of the
Trade Practices Act 1974 (Cth) (misuse of market power), s 47 (exclusive
dealing) and perhaps s 45 (arrangements between competitors) and would be
illegalised if falling foul of
them.
[52] See submissions set
out in Productivity Commission Report above n 3 at p 52 as to the issue of
non-integrated monopoly holders being ‘affiliated’ with other
entities. See above n 51 as to the operation of the Trade
Practices Act 1974 (Cth) in relation to these
‘affiliations’.
[53]
It is to be noted that, in Verizon Communications v Law Offices of Curtis V
Trinko LLP [2004] USSC 4; 540 US 398 (2004) the Untied States Supreme Court specifically
held that charging monopoly prices was of itself not unlawful. Indeed, said
the
court, the ability to charge monopoly prices, at least in the short term, is
what attracts ‘business acumen’ in the
first place, induces risk
taking and produces innovation and growth. It is submitted, for akin reasons, s
46 of the Trade Practices Act 1974 (Cth) is not breached simply by
monopoly pricing.
[54] National
Competition Council, National Access Regime – Guide to Part IIIA of the
Trade Practices Act: Part A Overview (2002) [2.3].
[55] Productivity Commission
Report, above n 3,
Finding 6.2, XXXII.
[56] See above n
16.
[57] See Part III, Section D of
this article: Is the
regulatory regime administratively
efficient?
[58]
Productivity Commission Report, above n 3,
90-1.
[59] Productivity
Commission Report, above, n 3, 93. Submission of the Australian
Pipeline Industry
Association.
[60] See Part IV,
Section D (above) of this article.
[61] Trade Practices Act
1974 (Cth) s 44X(2).
[62]
See above n 16.
[63]
See MCI Communications above n 33.
[64]
See above n 1 for
a brief summary of s 46.
[65]
See Part III, Section A (above) of this
article.
[66] See Part VI
and, in particular Part VI, Section F
above.
[67] There is also the
possibility of conflict between s 45 and s 47 of the Trade Practices Act
1974 (Cth) with PART IIIA but these possibilities are not here
discussed.
[68] Above n
20,
267.
[69] Under s 44ZZNA nothing
in the Access Regime is to affect PARTS IV and VII of the Trade Practices Act
1974 (Cth). Section 46 is in PART IV of the
Act.
[70] Above n
20.
[71]
See Part II above for an outline of the thoughts of the Man from
Mars.
[72] See Part III, Section
C for problems in this
regard.
[73] See general
observations at Part III, Section
D.
[74] See Part V, Section C.
The same criteria have to be evaluated by both the NCC and the ACCC. A
similar position to the above applies in relation to differently
worded
criteria.
[75] See Part VI above
and particularly Part VI, Section F.
[76] See Part V, Section C.
The selective specification of criteria necessarily means that some criteria are
omitted from the ‘shopping
list’ and some on it are irrelevant to
particular cases.
[77] See Part
V, Section C. Because of a confusion of criteria, some criteria are
evaluated by the wrong regulatory
body.
[78] See Part V, Section
C. The criteria are not mutually
exclusive.
[79] See Part V,
Section C. The result of the public interest criteria appearing in the
relevant tests is that access applications can become a type of roving
Royal
Commission.
[80] See Part VII
above.
[81] See Part IV, Section
A.
[82] See Part IV, Section B.
[83] See Part IV, Section D.
Note also the difficulties experienced by industries subjected to
regulation in relation to the regulatory decision making process
[at Part VI,
Section C].
[84] See Part IV,
Section E.
[85] See Part IV,
Section C.
[86] See text
relating to Part IV, Section G and commentary citing Boral (text relating to
above n 39- n
42).
[87]
See Part V, Section D. Note that price control was never stated to be an
objective of the Access Regime but is apparently regarded
by the NCC to be
so.
[88] See Part III, Section
E. Note this test was that provided in the Commonwealth
– State Co-operation Agreement in relation to the principles of the
regime but these principles were not carried into legislative
effect.
[89] See Part III,
Section E.
[90]
Ibid.
[91] See Part V, Section
D.
[92] See Part III, Section
A.
[93] See Part VIII
above.
[94] See Part III,
Section B.
[95] See above n
1 for brief details
of s 46.
[96] See, for example,
MCI Communications v AT&T Co. [1983] USCA7 822; 708 F2d 1081 (7th Cir 1983)
and general commentary in Part IV, Section F.
[97] See Part I, Section B and
Part IV, Section G.
[98]
Productivity Commission Report, above n 0.
[99]
The Trade Practices Act Amendment (National Access) Act 2006
(Cth).
[100] See Melway
Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA 13, (2001); Boral
Besser Masonry Pty Ltd v ACCC [2003] HCA 10; (2003) ATPR 41-915; Rural Press
Limited v ACCC [2003] HCA 75, (2003); NT Power Generation Pty Ltd v Power
and Water Authority [2004] HCA 48 for the four High Court s 46 decisions
given since the Productivity Commission’s review of the Access
Regime.
[101] Above n
20,
260.
[102] Productivity
Commission Report, above n 3,
58.
[103] See Kench, above n
15.
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