ACCC takes action against Aveling homes over online review websites

The Australian Competition and Consumer Commission says it has instituted proceedings in the Federal Court against Aveling Homes Pty Ltd (Aveling), a Perth-based home building company, for alleged misleading conduct and false or misleading representations.

The alleged conduct is in relation to review websites Aveling created for its businesses, Aveling Homes and the First Home Owner’s Centre.

The ACCC alleges that Aveling created review websites that represented they were independent of Aveling, and that the appearance, layout and features gave consumers the overall impression that they were affiliated with an independent third party consumer review website, Product Review, when this was not the case.

The ACCC also alleges that the review websites were deliberately managed by Aveling to ensure a favourable overall impression, by obscuring or removing unfavourable reviews.

“We believe the potential for harm from the conduct alleged in this case is significant, as buying or building a home is one of the biggest purchasing decisions for Australians,” ACCC Deputy Chair Dr Michael Schaper said.

“Online reviews are increasingly being relied on by consumers and they should be able to trust that those reviews are independent, unbiased and accurately reflect the range of consumer feedback received.”

The ACCC also alleges that Aveling’s marketing manager, Sean Quartermaine, was knowingly concerned in Aveling’s conduct.

The ACCC is seeking declarations, pecuniary penalties, injunctions, corrective notices, a compliance program, findings of fact and costs.

Background

Until 1 February 2017, Aveling also operated the brand ‘First Home Owners Centre’.

The ACCC’s allegations concern conduct and representations made on four Aveling websites:

www.aveling-homes.com.au (link is external) (the Aveling Homes website);

www.avelinghomesproductreviews.com.au (link is external) (the Aveling Homes review website);

www.firsthomeownerscentre.com.au (link is external) (the First Home Owners Centre website); and

www.firsthomeownerscentreproductreviews.com.au (link is external) (the First Home Owners Centre review website).

This is the second action taken by the ACCC in relation to online reviews. In November 2016, the ACCC instituted proceedings against Meriton Property Services Pty Ltd https://www.accc.gov.au/media-release/accc-takes-action-against-meriton-over-online-reviews

Figure 1: AvelingHomesProductReviews.com.au (as at 11 June 2016)

ACCC will block insurance companies from capping sales commissions

The Australian Competition and Consumer Commission has issued a draft determination proposing to deny authorisation to 16 insurance companies to agree to a cap of 20 per cent on commissions paid to car dealers who sell their add-on insurance products.

The Australian Securities and Investments Commission (ASIC) report, A market that is failing consumers: The sale of add-on insurance through car dealers (link is external), found that consumers are being sold expensive products that often provide little to no benefit. At the point of sale the consumer is focused on the purchase of a vehicle, not insurance, and the sales environment involves high-pressure selling tactics, a lack of adequate information, very high commissions, and conflicts of interest.

“The factors identified in ASIC’s report mean that consumers are often unable to make optimal, well-informed choices when buying add-on insurance products when buying a car from a dealer. A cap on commissions does not address these issues and will not remove the opportunity and incentive for insurers and dealerships to sell consumers expensive, poor value products,” ACCC Chairman Rod Sims said.

“This proposal doesn’t help to create an environment where consumers are in control and can benefit from effective competition. It is unlikely to address these market failures or improve the industry for consumers.”

“The ACCC considers that the proposed cap is unlikely to result in a public benefit.”

“While insurers would benefit from a cap at the expense of car dealers, this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors’ costs.”

“The ACCC is also concerned that these arrangements, if implemented, could significantly delay the development of more effective solutions to the problems that ASIC has identified,” Mr Sims said.

Background

Add-on insurance products are products that may be sold at the time of purchasing a motor vehicle. The add-on insurance may be connected to finance associated with the motor vehicle such as consumer credit insurance, gap insurance, walk away insurance, and trauma insurance. Alternatively, it may relate to the vehicle itself, such as comprehensive insurance, extended warranty insurance, or tyre and rim insurance.

The ASIC report, A market that is failing consumers: The sale of add-on insurance through car dealers (link is external), identifies issues such as a lack of price competition, poorly designed products, poor value for money relative to premiums, and a complex sales process that often did not disclose the total cost of the cover.

The ACCC expects to release its final decision in March 2017.

Micro firms make highest business complaints to ACCC

The Australian Competition and Consumer Commission’s latest ACCC Small Business in Focus Report reveals that micro and small businesses made 7,000 complaints and enquiries from July 1 to December 31 2016.

 

“Over 60 per cent of business contacts were from micro enterprises of four or under employees, which isn’t surprising given that micro firms are the biggest group of businesses in Australia,” ACCC Acting Chair Dr Michael Schaper said.

“In the past six months, the SME sector has been particularly concerned about misleading conduct and false representations with 735 complaints, consumer guarantees issues with 329 complaints, followed by misuse of market power concerns with 95 complaints.”

“Fewer franchisees have been reporting issues to the ACCC since the introduction of the new Franchising Code in January 2015. After an initial spike averaging 52 franchising complaints in the first six months of 2015, complaints have fallen to 32 a month by the end of 2016,” Dr Schaper said.

“The ACCC received 185 complaints from small businesses in the agriculture sector, a substantial increase from the previous six months. In the July to December period, the cattle and beef market study interim report was released, our dairy inquiry began, we conducted the first round of audits of signatories to the Food and Grocery Code, and our report into the horticulture and viticulture sectors was also published.”

Other key developments in the past six months:

  • Unfair contract terms provisions were extended to small business standard form contracts on 12 November 2016. We received 81 contacts about B2B UCT issues.
  • $1.395 million was reported lost by the small businesses to scams, down from $1.606 million in the previous six months
  • The ACCC took action against ABG Pages for alleged breaches of the Australian Consumer Law in its dealings with small businesses
  • The ACCC took action against Morild Pty Ltd for alleged breaches of the Franchising Code

“This year, we expect that the ban on excessive payment surcharging for all businesses on September 1 will generate significant interest from the business community. We have prepared advice for small business on the new credit card surcharging laws, which I hope all businesses will consult,” Dr Schaper said.

“We will also be releasing draft findings of our market study into the new car retailing industry mid-year, a matter of interest to many small businesses who operate in the industry or rely on new cars for their work. Businesses will have an opportunity to make a submission on the draft findings when it becomes available.”

 

 

Federal Court imposes multi-million dollar penalties on ANZ and Macquarie Bank

The ACCC says the Federal Court has imposed multi-million dollar penalties on Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Ltd (Macquarie) for attempted cartel conduct after action by the Australian Competition and Consumer Commission.

Following the filing of joint statements of facts and submissions by the parties, Justice Wigney imposed penalties of:

  • $9 million against ANZ in respect of its admission that it engaged in ten instances of attempted cartel conduct in contravention of the Competition and Consumer Act 2010 (CCA); and
  • $6 million against Macquarie in respect of its admission that it engaged in eight instances of attempted cartel conduct in contravention of the CCA.

The banks were also ordered to contribute to the ACCC’s costs.

“These penalties underline the seriousness of the conduct involved in these proceedings. Two significant Australian banks have admitted that on several occasions their traders communicated with other banks in an attempt to influence the ABS MYR Fixing Rate. This conduct had the potential to undermine the integrity of foreign exchange markets and undermine healthy economic growth,” ACCC Chairman Rod Sims said.

“Australia’s strong cartel laws apply equally across the economy, including in the banking sector.” Mr Sims said.

In his judgment, Justice Wigney stated:

“There could be little doubt that the attempted contraventions … were very serious… The conduct of the traders in question was deliberate and systematic.”

“Attempts by banks and other market participants to fix prices or financial benchmarks in the financial system should be regarded as particularly serious contravening conduct. It is essential that market participants and the public generally have confidence in the integrity and efficacy of the financial system.”

Justice Wigney also noted:  “The Australian public is entitled to expect that Australia’s major corporations act as exemplary corporate citizens wherever in the world they may operate.”

Background

Traders employed by a number of banks in Singapore communicated via online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate).

ABS benchmark rates are used as reference rates for settling NDFs. Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks.

Every trading day, each bank on the panel was required to submit a buy and sell rate for USD against the MYR. The ABS rules required that the submissions were made independently and based on the banks’ objective assessment of the market.

During 2011, ANZ and Macquarie traders attempted to make arrangements with other banks to make high or low submissions to the ABS MYR Fixing Rate. The rate would ultimately affect settlement payments for MYR denominated non-deliverable forward contracts (NDFs).

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however often initiated discussions between traders and acted as a hub or coordinator between submitting banks. ANZ and Macquarie’s customers included Australian companies.

The ACCC estimates that the annual MYR NDF turnover in Australia was approximately $9 to 10 billion.

Similar conduct has been investigated and sanctioned in other markets.  The Australian Securities and Investments Commission is also engaged in litigation against several Australian banks regarding the setting of interest rate benchmarks.

ACCC rejects the banks colluding to bargain on Apple Pay

From The Conversation.

The Australian Competition and Consumer Commission (ACCC) is planning to deny the Commonwealth Bank of Australia (CBA), Westpac, National Australia Bank (NAB) and Bendigo and Adelaide Bank (the banks), petition to collectively bargain with and boycott Apple on Apple Pay.

mobile-pic

Justifying the decision, ACCC chairman Rod Sims said that the likely benefits of allowing the banks to collectively bargain does not outweigh the potential negative affects.

The banks are desperate to get access to Apple phones, not least as ANZ recently claimed a surge in applications for their credit and debit cards after striking a deal with Apple. This shift in consumer behaviour could potentially reduce the customer base of the other banks, simultaneously increasing both ANZ’s customer base and the use of its payments services.

But Apple imposes fees and restrictions that the banks currently find prohibitive.

The banks wanted to bargain with Apple over two key issues. The first is access to the Near-Field Communication (NFC) controller in iPhones, which would enable them to offer their own digital wallets to iPhone customers (in direct competition with Apple’s digital wallet), bypassing Apple Pay. The second is to remove the the restriction Apple imposes on banks, preventing them from passing on fees that Apple charges for the use of its digital wallet.

Chairman of the ACCC, Rod Sims, believes it’s best to deny the big four banks the right to collude and bargain with Apple. Dean Lewins/AAP

It’s all about negotiating power

At the moment only consumers with certain cards issued by ANZ, American Express and card issuers using Cuscal Ltd as their collective negotiator, are able to use Apple Pay. It’s been reported that ANZ agreed to share with Apple some of the fee it charges to process payments in exchange for access to Apple Pay

If the ACCC had decided in favour of the banks they could have, in theory, used their combined negotiating power to strike an even better deal with Apple. Not only would they have been bargaining from a stronger position, they could also have threatened to boycott Apple Pay for up to three years.

The ACCC argued this have would reduced the competitive tension between the banks in their individual negotiations with Apple, which could also reduce the competition to supply mobile payment services for iPhones. The threat of a boycott could also mean a significant period of uncertainty and would result in decreased choice for the consumers whose banks are involved. The other digital wallet options for the banks are Android Pay and Samsung Pay, both of which are available in Australia, but the iPhone popularity with consumers makes Apple Pay very attractive to both consumers and banks.

The ACCC may have decided against allowing the banks to bargain collectively, as this would also have set a precedent for any future disputes between the banks and their service providers. The banks may have over played their hand by also threatening a boycott against Apple.

Reduced competition could have knock-on effects

Another deciding factor in the ACCC’s decision was that digital wallets/mobile payments are still in their infancy in Australia and consumers are already using their contactless cards to do “tap and go” payments. A rash decision now to allow collective bargaining with Apple could distort the mobile payment market and further delay the adoption of this technology.

The use of tap and go payments has risen greatly in recent years, accounting for up to 75% of all Visa transactions. This has caused many consumers to question, exactly what the advantages are of digital wallets over contactless cards. The absence of an obvious advantage over other payment methods like contactless cards has slowed the adoption of mobile payments in Australia. Any reduction in competition could stall this even longer.

What next for Apple pay

The ACCC’s decision is just a draft at this stage and there’ll be further public consultations. It plans to release its final decision on March 2017, but in the meantime there will be further uncertainty about the adoption and use of digital wallets in Australia.

The banks now have two distinct choices. They can either continue to act collectively and seek to persuade the ACCC that the draft decision is not the correct one, or they can independently approach Apple to see if they can negotiate a better or at least an equivalent deal to that already struck by ANZ.

Author:Steve Worthington, Adjunct Professor, Swinburne University of Technolog

Banks Blocked From Collective Bargain With and Boycott Of Apple on Apple Pay

The Australian Competition and Consumer Commission has issued a draft determination proposing, on balance, to deny authorisation to the Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank, and Bendigo and Adelaide Bank (the banks) to collectively bargain with and boycott Apple on Apple Pay.

mobile-pic

The banks sought authorisation to bargain with Apple on two key issues:

  • access to the Near-Field Communication (NFC) controller in iPhones. Such access would enable the banks to offer their own integrated digital wallets to iPhone customers in competition with Apple’s digital wallet without using Apple Pay
  • removing restrictions Apple imposes on banks preventing them from passing on fees that Apple charges the banks  for the use of its digital wallet.

“This is currently a finely balanced decision. The ACCC is not currently satisfied that the likely benefits from the proposed conduct outweigh the likely detriments,” ACCC Chairman Rod Sims said.

The banks argue that being able to engage in the proposed conduct will increase the likelihood of being able to offer competing wallets on the iOS platform and pass through Apple fees, which would lead to the following public benefits:

  • increased competition and consumer choice in digital wallets in Australia
  • increased innovation and investment in digital wallets and other mobile applications using NFC technology
  • greater consumer confidence leading to increased adoption of mobile payment technology in Australia
  • increased pricing efficiency in digital wallets.

“While the ACCC accepts that the opportunity for the banks to collectively negotiate and boycott would place them in a better bargaining position with Apple, the benefits are currently uncertain and may be limited,” Mr Sims said.

The applicant banks have yet to reach agreement with Apple over deals to enable their cardholders to use Apple Pay. Apple does not allow the banks, or any entity, direct access to the NFC to allow them to offer their own integrated digital wallet to iPhone users.

“However, banks can already offer competing digital wallets on iPhones without direct access to NFC, through their own apps using Apple Pay payment technology, or using NFC tags. Banks can also offer digital wallets on the Android platform,” Mr Sims said.

“Digital wallets and mobile payments are in their infancy and subject to rapid change. In Australia, consumers are used to making tap and go payments with payment cards, which provide a very quick and convenient way to pay. It is therefore uncertain how competition may develop with the availability of mobile payments and possible future innovations.”

The ACCC is concerned that the proposed conduct could reduce or distort competition in a number of markets.

The conduct would reduce the competitive tension between the banks individually negotiating with Apple, which could reduce competition between the banks in the supply of mobile payment services for iPhones.

“Apple Wallet and other non-bank digital wallets could represent a disruptive technology that may increase competition between the banks by making it easier for consumers to switch between card providers and limiting any ‘lock in’ effect bank digital wallets may cause,” Mr Sims said.

There may also be detriments to competition in digital wallets arising from the proposed conduct. Authorisation would allow the banks to agree not to sign up to Apple Pay for three years. This is a significant period of uncertainty and would result in decreased choice for consumers whose banks engage in this conduct.

The ACCC considers that the conduct could also distort competition between mobile operating systems. Apple’s iOS platform is a differentiated offering that competes globally against other operating systems, such as Android. One of the features each system provides to consumers is mobile payment services and digital wallets. To the extent that the proposed conduct leads to an alteration of the offering that Apple is able to make available on the iOS platform, the proposed conduct distorts competition between these operating system providers.

The ACCC is seeking submissions on its draft determination before making a final decision.

Background

A ‘digital wallet’ is an app on a mobile device that can provide a number of the same functions as a physical wallet, including the ability to make payments in-store and storing other information, such as loyalty or membership cards. A ‘mobile payment’ is a payment performed in-store using a digital wallet.

On 26 July 2016, the banks sought authorisation on behalf of themselves and other credit and debit card issuers to engage in limited collective negotiation and limited collective boycott conduct. The banks have since clarified that they only wish to collectively negotiate with Apple in relation to specified issues regarding NFC access on iPhones, reasonable access to the App Store for their digital wallets, and the ability to pass through Apple Pay fees.

On 19 August 2016 the ACCC decided not to grant interim authorisation to the applicants.

Currently only consumers with eligible payment cards issued by ANZ and American Express are able to use Apple Pay. Cuscal Ltd, on behalf of 31 issuers, recently reached agreement with Apple to offer Apple Pay.

Authorisation provides statutory protection from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit resulting from the conduct outweighs any public detriment.

The ACCC will conduct further public consultation with interested parties regarding its draft determination. The applicants or interested parties may call a ‘conference’ to make oral submissions to the ACCC about the draft decision.

The banks have undertaken to agree to an extension to the statutory six month period for assessment, because of the additional time for the banks and interested parties to make submissions and for the ACCC to consider those submissions. The ACCC has decided to extend the statutory period for an additional three months.

The ACCC expects to release its final decision in March 2017.

ACCC takes proceedings against ANZ and Macquarie bank for attempted cartel conduct

The Australian Competition and Consumer Commission says it has today taken proceedings on a consent basis against Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Limited (Macquarie) in relation to alleged attempts to engage in cartel conduct.

accc-pic

Following cooperation by ANZ and Macquarie, the parties have agreed on the following facts to be presented to the Federal Court for its consideration:

  • a Macquarie trader, together with traders employed by ANZ and a number of other banks, all located in Singapore, communicated via private online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate);
  • on various dates in 2011, traders employed by ANZ and the Macquarie trader attempted to make arrangements with other banks that particular submitting banks would make high or low submissions to the ABS in relation to the ABS MYR Fixing Rate.

The ACCC alleges that on various dates in 2011, ANZ or Macquarie sought to influence the ABS MYR Fixing Rate published on that day, and thus attempted to contravene the cartel provisions of the Competition and Consumer Act 2010.

“These proceedings are a reminder that Australian cartel laws apply to financial markets, and capture cartel conduct by firms that carry on business in Australia, regardless of where that conduct occurred,” ACCC Chairman Rod Sims said.

“The ACCC recognises the integrity of foreign exchange markets plays a fundamental role in our market economy.”

ANZ has admitted to 10 instances of attempted cartel conduct and Macquarie to eight.Submissions to the Federal Court have been made as follows:

  • ACCC and ANZ have jointly submitted that ANZ pay a pecuniary penalty in the amount of $9 million and make a contribution to the ACCC’s costs; and
  • ACCC and Macquarie have jointly submitted that Macquarie pay a pecuniary penalty in the amount of $6 million and make a contribution to the ACCC’s costs.

Ultimately it is for the Court to decide whether penalties in these amounts are appropriate and the ACCC will not make any further comment regarding penalties until the Court makes final orders.

Background

ABS benchmark rates are used as reference rates for settling non-deliverable forward contracts (NDFs). Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts. Banks and other institutions primarily use NDFs for hedging and risk management.The ABS MYR Fixing Rate would ultimately affect NDF settlement payments.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks. The ABS Rules required this be done independently and without reference to other submitting banks.

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however it often initiated discussions between traders.

The ACCC estimates that the annual MYR NDF turnover in Australia in 2011 was approximately $9 to 10 billion. ANZ and Macquarie’s customers included Australian companies.

Businesses remove unfair contract terms before new law

The Australian Competition and Consumer Commission’s new report into potentially unfair contract terms details its review of 46 contracts across seven industries, which resulted in a range of businesses making changes to their small business standard form contracts.

ethics-pic

The ACCC will begin enforcing the new law this week [Nov 12], when consumer protections against unfair contract terms are extended to include up to 2 million Australian small businesses.

The report, Unfair terms in small business contracts, provides an industry-by-industry breakdown of the common terms of concern identified by the ACCC following its engagement with businesses in seven industries, including advertising, telecommunications, retail leasing, independent contracting, franchising, waste management, and agriculture.

“Businesses should be aware that from Saturday the ACCC is moving from its education phase to an enforcement approach where we will be targeting unfair contract terms,” ACCC Deputy Chair Dr Michael Schaper said.

“Positive engagement with the ACCC over the last year has seen businesses such as Australia Post, News Limited, Optus and Scentre Group (Westfield) amend or remove contract terms that may have been problematic when the new law commences.”

“Small businesses sign an average of eight standard form contracts a year and from November 12 these contracts will be covered by a law preventing unfair terms in contracts that are offered on a ‘take-it or leave-it’ basis.”

The ACCC has identified three types of problematic terms as being widespread and likely to cause concern.

“Terms that give one party an unconstrained right to unilaterally vary key aspects of a contract, that unfairly seek to shift liability from the contract provider to the small business or that provide unnecessarily broad termination rights will almost always raise concerns about unfairness. Businesses that rely on these types of terms should be aware that they are leaving themselves open to action by the ACCC or another party,” Dr Schaper said.

“Businesses should consider whether a contract term creates an imbalance of obligations between the parties, whether it is necessary to protect a legitimate business need, and whether it causes detriment to the other party. Businesses should ensure that potentially problematic terms are only as broad as reasonably necessary to protect their legitimate interests, as terms that grant rights beyond this are likely to be unfair.”

The report provides guidance to these industries about these specific concerns, but also serves as general guidance to businesses operating in other industries about the kinds of terms that may be considered unfair from November 12.

Previous research has shown almost two thirds of small businesses claim to have experienced unfairness in contract terms and conditions they have signed, with almost half report experiencing some harm as a result.

See also: Unfair terms in small business contracts

Background

The law will apply to a standard form contract entered into or renewed on or after 12 November 2016. If a contract is varied on or after 12 November 2016, the law will apply to the varied terms.

Contracts covered include those between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year or $1 million if the contract runs for more than a year.

Standard form contracts provide little or no opportunity for the responding party to negotiate the terms – they are offered on a ‘take it or leave it’ basis.

The law sets out examples of contract terms that may be unfair, including:

  • terms that enable one party (but not another) to avoid or limit their obligations under the contract
  • terms that enable one party (but not another) to terminate the contract
  • terms that penalise one party (but not another) for breaching or terminating the contract
  • terms that enable one party (but not another) to vary the terms of the contract.

Only a court or tribunal (not the ACCC) can decide that a term is unfair. However, if a court or tribunal finds that a term is ‘unfair’, the term will be void – this means it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.

The Increasing Concentration in Australia’s Economy

Australian Competition and Consumer Commission Chairman Rod Sims discussed increasing concentration in the Australian economy at today’s RBB Economics Conference in Sydney.

“The rise of large corporations in the Australian economy has been substantial. Indeed it seems we have outpaced the US,” Mr Sims said.

Analysis prepared by Port Jackson Partners Limited shows the revenue of Australia’s largest 100 listed companies increased from 27% of GDP in 1993 to 47% of GDP in 2015. This compares to the US figures of 33% to 46%.

ASX Top 100 Revenue Proportion of GDP

“In Australia many markets are concentrated or are likely to become concentrated as firms pursue efficiencies from scale. In some markets there may not be room for more than a few efficiently sized firms given the size of demand,” Mr Sims said.

“From a competition perspective, what we need to understand is whether smaller rivals or new entrants can readily contest the position of larger, more established firms.”

“We should, therefore, have an eye to how often the identity of large firms change,” Mr Sims said.

Again, drawing on work by Port Jackson Partners Ltd, of the ASX top 100 companies in 1990, only 29 companies remained in the top 100 as at October 2015.

Chart showing, of the ASX top 100 in 1990 only 29 companies survive in the top 100 as at October 2015

Mr Sims, however, questioned the increasingly put view that we need not be concerned with industries becoming heavily concentrated, and with monopolies and their behaviour.

“It seems to me that, absent a clear and convincing economic and evidence based explanation of how a merger will avoid harming consumers, the standard economic wisdom should prevail,” Mr Sims said.

“This wisdom is that mergers resulting in high levels of concentration in markets with substantial barriers to entry will usually reduce competition and cause harm to consumers and our economy.”

He also said circumstances where monopoly pricing has no effect, or only a small effect on economic efficiency, are rare.

While not advocating any positions, Mr Sims then raised a series of questions for further consideration about market concentration and merger analysis, including:

  • Why is it that economic argument and opinion increasingly down plays conventional economic theory and wisdom on high levels of consolidation and monopolies?
  • Do we need to consider something similar to the approach adopted by US courts where once markets are defined and the merger is likely to result in a significant increase in concentration, there exists a “rebuttable presumption” that the merger should not proceed absent evidence to the contrary?There will be times when a merger to high concentration is acceptable, due perhaps to low entry barriers, but logic says it will not be the norm. Why shouldn’t those arguing the unconventional have the burden of producing evidence to support their position?
  • Are regulators able to analyse and act where large incumbent firms continue to acquire promising start-ups?
  • Is there too much focus on overlap in specific narrow market sectors? Should we focus more on the wider actual and potential competitive constraints and the extent or strength of those constraints?
  • How many different forms of remedy should a competition regulator need to assess before saying “enough”?

“All of us here today understand the importance of strong actual or potential competition to the effective working of our market economy. This is why we all have an interest in these questions,” Mr Sims said.

Read the Chairman’s speech

ACCC Concerned About Link Acquiring Pillar

The Australian Competition and Consumer Commission has issued a Statement of Issues on the possible acquisition of the Superannuation Administration Corporation (trading as Pillar) by Link Administration Holdings Limited (ASX:LNK) (Link). Pillar is being privatised by the NSW Government.

The deadline for submissions from interested parties in
response to this Statement of Issues is 28 October 2016, and the anticipated date for ACCC’s final decision is 15 December 2016.

This is important because given mandatory superannuation, demand for administration services will continue to grow, yet without an adequate competitive industry structure, fees to members will be higher, reducing returns to members.  There has been increasing consolidation of Superannuation Administration Service (SAS) providers which has resulted from market exits (Citistreet and IBM for example)  and Link has acquiring other SAS providers.

SAS provide a range of superannuation administration services including the management and distribution of benefit payments to members, data and document management, member communication – production and issuing of member and employer statements, management of employer contributions and processing of contributions into funds, administering member investment choice, customer contact services, insurance and claims management, online member and employer services, financial and accounting services and risk and compliance framework.

The ACCC has estimated that Link administers approximately 80 per cent of outsourced member accounts, or 10 million accounts.

Link has acquired numerous superannuation services business in recent years, including Australian Administration Services in September 2006, Primary Superannuation Services Pty Limited in 2008, Australian Superannuation Group in 2008, PSI Superannuation Management in June 2012, FuturePlus Financial Services Pty Ltd in December 2012,  administration assets of Russell Investments in February 2013 and Superpartners Pty Ltd in August 2014; all of which has more than doubled Link’s member accounts. Link has its own proprietary IT platform (the aaspire platform), which it uses for the provision of administration services for most of its clients.

Pillar is a NSW state-owned corporation and administers more than 1.1 million superannuation member accounts with assets totalling more than $100 billion. It provides administration services mainly to Government superannuation funds, pension funds, and defined benefit schemes. Its clients include First State Super, State Super and Public Sector Superannuation accumulation plan (PSSap). Pillar does not have its own proprietary IT administration platform and is currently licensed to use Financial Synergy’s (Acurity) platform.

The NSW Government has announced that it intends to privatise Pillar, and has commenced a competitive sale process. Link is one party who has expressed an interest in acquiring Pillar.

 

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“The ACCC is concerned that the possible acquisition is likely to substantially lessen competition in the supply of superannuation administration services by entrenching Link’s dominant position, resulting in lower service levels or higher prices, which will ultimately be passed on to fund members,” ACCC Chairman Rod Sims said.

Link and Pillar both supply administration services to superannuation funds in Australia. They are the only two providers that currently service larger funds.

“The ACCC is concerned that the possible acquisition will remove the only alternative superannuation administration services provider with the demonstrated capacity to supply administration services to larger funds in competition with Link. Consequently, there would be one dominant administration provider facing limited competitive constraint in the outsourced market,” Mr Sims said.

“It would also remove the potential for an alternative owner to further invest in Pillar’s offering and make it an even stronger competitor to Link in the future.”

The ACCC is seeking to better understand the barriers to entry or expansion and the likelihood of new entry or expansion in the sector. Other issues include the extent to which insourcing superannuation administration services is a credible constraint on Link and the likelihood of self-administered funds providing administration services to other funds.

“The ACCC’s preliminary view is that a fund that currently outsources superannuation administration services is unlikely to switch to insourcing as a way of bypassing Link; it would be too costly and difficult,” Mr Sims said.

“The ACCC also considers that funds are unlikely to provide superannuation administration services to each other in a way that competitively constrains Link. It is beyond the remit of most funds to sell administration services, and, furthermore, many funds are likely to be reluctant to purchase administration services from their competitors.”

The Statement of Issues seeks further information on the competition issues which have arisen from the ACCC’s market inquiries to date.

The Statement of Issues is available on the public register: Link Administration Holdings Limited – possible acquisition of Superannuation Corporation Administration (trading as Pillar)