At the New Zealand Commerce Commission (NZCC), our aim is to achieve the best possible outcomes in competitive and regulated markets for the long-term benefit of New Zealanders. Our work includes:
- business competition;
- regulated industries (telecommunications, electricity, airports, gas and dairy); and
- consumer protection (fair trading, consumer credit and some product safety).
Over 2017, the Commission has decided several significant merger applications and undertaken investigations and advocacy work to protect and empower consumers. This article highlights some of our work in the competition area.
Cartels and other restrictive trade practices
We have continued to be proactive in taking enforcement action against cartel conduct. We have recently obtained penalties of more than NZ$16 million imposed on parties involved in anticompetitive agreements in the real estate and livestock industries. In December 2015, the NZCC filed three separate sets of proceedings concerning price fixing of real estate marketing fees: a nationwide case, and regional Hamilton and Manawatu cases. In the national case, fines imposed against the head offices of Barfoot & Thompson, Harcourts, LJ Hooker, Ray White and Barclays totalled more than NZ$12 million. In the Manawatu case, the four defendants were collectively fined NZ$4 million. In August 2017, a Hamilton-based real estate agency (trading under the Ray White banner) was ordered to pay a penalty of NZ$1.05 million for its part in a national price fixing case. In September 2017, two Hamilton-based real estate agents (Lodge and Monarch, trading as Harcourts) successfully defended themselves against the claims. The Commission has filed a Notice of Appeal against the High Court’s decision. The proceedings relate to three separate alleged price-fixing and anticompetitive agreements in response to Trade Me – an online marketplace and classified advertising platform – changing its fees for listing properties for sale on its website. The NZCC alleged that the real estate agents had agreed to pass on the increase to vendors.
Our leniency policy continues to be effective in detecting cartels and anticompetitive conduct. In 2017, we received four applications for leniency. We have also undertaken an advocacy project working with government procurement agencies to deter bid-rigging in an effort to help detect and deter anticompetitive conduct. We are currently reviewing the leniency policy to ensure it is as effective as possible.
On 15 August 2017, the Commerce (Cartels and Other Matters) Amendment Bill was passed into law. The key changes included an express prohibition against cartel provisions (price fixing, restricting output or allocating markets) and a tenfold increase for misleading the Commission. The new Act also introduced a suite of exceptions for specified types of agreements, including a clearance regime that enables parties involved in a collaborative activity to seek clearance from the Commission for that arrangement. We have published guidelines for businesses for assessing collaborations between competitors as a result of amendments to the law relating to cartels.
In June, the government announced its intention to give the Commission the power to conduct market studies. At the same time, the government proposed to repeal the cease-and-desist regime and replace it with enforceable undertakings.
Mergers and acquisitions
The Commission has both an enforcement and adjudication role in relation to mergers and acquisitions. The Commerce Act prohibits mergers and acquisitions that substantially lessen competition and allows the Commission to grant a clearance for acquisitions where it is satisfied that the arrangement will not or would not be likely to have the effect of substantially lessening competition. In certain circumstances, the Commission can authorise an anticompetitive transaction that may lead to significant public benefits that would outweigh the harm to competition. Over the past year, we have faced particularly high demands with a number of major complex merger cases. These cases, especially Vodafone/Sky and NZME/Fairfax, have been among the most challenging we have ever reviewed. We declined both applications as we were not able to exclude the real chance that they would substantially lessen competition in affected markets.
In May 2017, we issued our final decision for NZME/Fairfax, applying the public benefit test, and declined to grant authorisation. In our view, the merger would be likely to substantially lessen competition in advertising and reader markets. We did not consider that there was such a benefit to the public that authorisation should be granted and were concerned that the merger would be likely to reduce both the quality of news produced and the diversity of voice (plurality) available for New Zealanders. NZME and Fairfax appealed our decision to the High Court. The High Court dismissed the appeal and upheld the Commission’s decision to decline the application.
In March 2017, Sky and Vodafone appealed our decision to the High Court. This appeal was withdrawn in June and the merger agreement terminated. The proposed merger would have created a vertically integrated pay-TV and full-service telecommunications provider in New Zealand owning all premium sports content. We were concerned the merged entity would be in a position to leverage its control over premium live sports content to substantially lessen competition in telecommunications markets.
Both the Sky/Vodafone and NZME/Fairfax merger cases involved multiple markets and rapidly changing technologies. For example, the proposed Vodafone New Zealand and Sky Network Television merger raised issues concerning fast-moving technology markets. Likewise, the proposed Fairfax NZ and NZME merger focused on the implications of content and advertising increasingly migrating from print to mobile formats.
In July 2017, we declined to grant clearance to Vero Insurance New Zealand Limited to acquire up to 100 per cent of the shares in Tower Limited. The merger proposed bringing together the second- and third-largest insurers for domestic house, contents and private motor vehicle insurance in New Zealand, leaving only two substantial competitors in the market post-merger.
Section 47 of the Commerce Act prohibits the acquisition of a business or shares if it would, or would be likely to, have the effect of substantially lessening competition in a market. The merger clearance regime is voluntary, but we can investigate companies that have not sought formal clearance if we consider the merger may have adversely affected competition.
Like most of the areas we work in, we take an educative and enforcement approach to address issues and prevent harm. To better equip those working in public procurement with the tools they need to detect and deter bid-rigging and to improve their knowledge of the Commerce Act, we undertook a procurement outreach project. This included staff presenting to various local and central government agencies around the country. We have an ongoing project involving procurement outreach to government agencies. We have engaged with procurement officials at central and local government agencies and presented to local government CEOs.
Looking to the future
At our July 2017 conference, we outlined our priority focus areas for the 2018 financial year. These areas, along with our enduring priorities, help us to focus our activity and limited resources. We will continue to prioritise cases where anticompetitive conduct or merger activity could substantially lessen competition and impact businesses and consumers. We will also look at ways to improve efficiency and transparency in our merger clearance process.
In late 2016, we announced our new five-year strategy, which has become a way of thinking about the future and a touchstone for strategic discussion, planning and prioritisation. The strategy is focused around a vision of New Zealanders being better off because markets work well and consumers and businesses are confident market participants. In developing our business plan and priorities for the 2018 financial year, we kept coming back to the vision, strategic objectives and strategies to ensure alignment. We believe that setting an integrated strategic plan for the NZCC will provide clear direction on where we are heading and how we plan to get there.
As always, the NZCC is continually adapting to its changing environment and it has been a demanding but fruitful year. I am pleased with the way staff rose to the challenge of an increased workload in terms of our consumer work and the complexity of some of the merger and regulatory decisions we have made. We have an excellent team of people who constantly strive to achieve the best outcomes for New Zealanders and I believe we are well placed for the future.