Competition news

Welcome to In Touch – the Allens Competition Team's regular round-up of developments in competition law and what it means for your business.

We hope you find this issue helpful. Please let us know if you would like us to investigate any competition news and, as always, get in touch.

Anti-competitive conduct: ACCC opposes ihail taxi booking app

The ACCC has issued a draft decision to deny authorisation to a proposed joint venture between domestic and international taxi networks to operate the new 'ihail' smartphone taxi booking app. The ihail app would provide passengers with a single booking platform to access the closest available taxi, regardless of the taxi network to which the vehicle belongs. Each taxi network would continue to operate their own booking apps alongside the coordinated platform.

The ACCC said that the introduction of the ihail app does not represent a new type of product for the taxi industry. Although the ACCC accepts that ihail would provide consumers with a convenient way to book taxi services, it believes the app would have a significant detrimental impact on competition in the taxi industry, which could impact on prices and quality of service. The app would cover over half of all taxis in Australia, with the potential to grow to include all taxi networks in any area.

Aspects of the proposal that concerned the ACCC were:

• the ihail app would reduce competition between taxi companies on prices and services to customers using the ihail app;
• the extent of ihail's coverage would challenge the commercial viability of existing apps operated by individual taxi networks, as well as those operated by third party providers such as ingogo and goCatch;
• ihail's requirement that passengers pay fares through the app, which are processed with Cabcharge rather than directly with the driver inside the taxi, would significantly reduce competition between taxi payment processing providers more generally; and
• the ability of ihail users to offer an amount above the metered fare to encourage expedited acceptance of their taxi request could reduce access to taxis for financially disadvantaged members of the community during busy periods.

What this means

The ACCC's decision to refuse authorisation to ihail makes clear that the ACCC will closely scrutinise an attempt by incumbent businesses facing disruption from new players to jointly mobilise efforts to counter that disruption. It indicates that the ACCCx has concerns over networks effects in the digital economy, where consumers are drawn to a particular product or service because of its size or scale, rather than the feature offered or better pricing.

ihail has indicated its willingness to work with the ACCC to address the concerns raised. The ACCC is currently seeking further submissions from interested parties, and expects to make its final decision in late November or early December.

If you would like more information on this issue, get in touch with Carolyn Oddie.

Unconscionability: Unfair contracts legislation

Under new legislation¹, the unfair contract terms regime will apply to 'business-to-business' transactions. The changes will not have effect until one year after the legislation recieves Royal Assent. The rationale behind the changes is that small businesses often lack the expertise to negotiate successfully the terms of the contracts they make and lack the resources required to adequately compensate for losses stemming from unfair contracts.

The new legislation amends the unfair contract terms provisions relating to financial services and products in the ASIC Act² and those relating to the supply of goods and services in the ACL. The protections cover standard form contracts where:

• one or more of the contracting parties has less than 20 employees; and
• the contract has a value of up to $300,000 and a term of up to one year; or
• the contract is valued from $300,000 to $1 million and has a term greater than one year.

What this means

A greater range of contracts will be covered by the unfair contract terms regime than was previously the case. This will likely have the consequence of increased compliance costs, as existing contractual arrangements will require review. Businesses with no prior exposure to the regime will need to consider its implications (ie manufacturers that deal with small retailers, and franchisors dealing with franchisees).

Terms that are found to be unfair will be rendered void and unenforceable. Businesses that deal with small businesses must consider the enforceability of terms within their standard term contracts to minimise the risk that such terms may be declared void by a court.

If you would like more information on this issue, get in touch with Kon Stellios.

Access/Part XIC: ACCC decision on prices for Telstra's copper network

Earlier this month the ACCC published its final decision on its public inquiry into making final access determinations for a number of the fixed-line services and the wholesale ADSL service that Telstra provides over its copper network. The ACCC's decision compels Telstra to reduce its wholesale charges for its copper network by 9.4 per cent. This compares to Telstra's request for an increase in charges of 7.2 per cent.

The ACCC decision was contrary to the position of:

• the Department of Communications, which contended the need for price stability in the structural reform of the telecommunications industry and the need for Telstra to recover appropriate costs in the context of customer migration to the NBN; and
• the-then Minister for Communications Malcolm Turnbull, now Prime Minister of Australia, and Mathias Cormann, as Minister for Finance, who wrote jointly to the ACCC Chairman urging support for Telstra's proposal for reasons of commercial certainty and price stability, among other things.

The ACCC considered that its decision reflects its estimate of the prudent and efficient costs that should be recovered by Telstra for the provision of these services. The ACCC states that access seekers should not incur higher charges as a result of costs associated with Telstra's arrangements with NBN Co. The ACCC also considered that its decision will not disrupt the transition of services to the NBN, but that it will rather promote efficiency and competition during the transition and is in the long-term interests of end users.

What this means

The decision highlights the tension between government policy and the Government's view on the structural reform of telecommunications industry, and the ACCC's views. Given that the development of the NBN, one of the largest single public infrastructure projects in Australian history, was a government initiative, the fact that the ACCC may not have accorded sufficient weight to government policy or submissions highlights the seriousness with which the ACCC takes its role as an independent statutory government authority serving the public interest.

It also has broad implications for regulated entities, and demonstrates that the ACCC will make pricing decisions with significant implications for regulated entities if it believes it is in the interest of end users. We will let you know whether Telstra takes any further action in respect of the ACCC's decision.

If you would like more information on this issue, get in touch with Fiona Crosbie.

Investigations and enforcement: Food and Grocery Code

The ACCC announced that it was concerned about the way in which some retailers were presenting supply agreements to their suppliers. In particular, the ACCC was concerned about the lack of detail surrounding payment for wastage and theft in-store. The Food and Grocery Code is a voluntary framework that requires retailers or wholesalers to deal with suppliers in good faith. Currently, About Life, ALDI, Coles and Woolworths have signed up to the Code.

The Code establishes a complaint process for suppliers. While there are no financial penalties, the ACCC may enforce other remedies, including injunctions or compensation.

What this means

In utilising both communications with retailers directly as well as public statements about its position the ACCC is highlighting its continued focus on this area, as well as potentially signalling concerns about the efficacy of the Code.

If you would like more information on this issue, get in touch with David Brewster.

Mergers: ACCC Decision on Foxtel

The ACCC has announced that it would not oppose Foxtel, Ten, Multi Channel Network Pty Ltd and Presto TV proceeding with various transactions. The competition team at Allens acted for Foxtel in this matter. The proposed transactions involve:

• Foxtel acquiring up to 15 per cent of Ten;
• Ten acquiring a 24.99 per cent stake in advertising sales agency MCN, currently a joint venture between Foxtel and Fox Sports; and
• Ten being granted an option to acquire 10 per cent of Presto TV, which is a joint venture between Foxtel and Seven.

After conducting market enquiries, the ACCC published a Statement of Issues in which it identified potential areas of concern, including how the proposed transactions would affect the acquisition of premium sports rights, the acquisition of non-sport content, and the supply of advertising services in Australia.

With respect to sports rights, the ACCC considered that Foxtel and Ten would continue to face strong competition from free-to-air networks, as well as emerging sports-streaming platforms. The ACCC also considered that the proposed transaction would not adversely affect creators of premium non-sport content, as there are a large number of such firms, and in-house production plays an important part in this industry. Regarding advertising, the ACCC recognised that Foxtel and Ten would offer bundled products across free-to-air and subscription television, however it considered that this combined offering would not substantially lessen competition.

The parties still require approval from the Foreign Investment Review Board.

What this means

The transactions are the most recent occasion in which the ACCC has reviewed its approach to regulating media markets. Competition from online media players is rapidly changing this sector – adding new competitors and blurring previous market boundaries. Most relevant to these transactions, Australian free-to-air and subscription television businesses are experiencing increasing competition from streaming services and from global online advertising companies.

Approval of the transitions also demonstrates an approach to the assessment of control issues in minority shareholdings that emphasises economic incentives and the ability of firms to act on those incentives through existing corporate governance arrangements. Foxtel would only have a small interest in Ten, with a single representative on the newly constituted six person Ten board.

The ACCC also used its announcement of this decision to call for further reform in the Australian media sector, including reform of the 75 per cent reach rule.

If you would like more information on this issue, get in touch with Jacqueline Downes.