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REGULATORY OBSERVERInternational and Australian regulatory developments and decisions

26 November 2015

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ACCC Chairman sets out failings of price monitoring

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International Regulatory Round-up

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Australian Regulatory Round-up

Issue 65

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

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

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

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

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

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

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

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

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International Regulatory Round-upCOMMUNICATIONSEuropeUK: Ofcom removes ‘wholesale must-offer’ for Sky Sports 1 and 2On 19 November 2015, the Office of Communications (Ofcom) announced its decision to remove the regulation requiring Sky to offer Sky Sports 1 and 2 on a wholesale basis, as the company is now widely supplying these channels to other pay TV providers on commercial terms. The 'wholesale must-offer' regulation was introduced in 2010.

UK: Ofcom announces details of 2016 spectrum auctionOn 26 October 2015, the Ofcom confirmed an auction is planned to take place in early 2016 for spectrum made available by the Ministry of Defence as part of a wider Government initiative to free up public sector spectrum for civil uses. A total of 190 megahertz (MHz) of high-capacity spectrum is being made available in two bands – 2.3 gigahertz (GHz) and 3.4 GHz – which are particularly suited for high-speed mobile broadband services, because they can carry large amounts of data.

FRANCE: ARCEP launches public consultation on its regulatory priorities On 13 November 2015, the Autorité de régulation des communications électroniques et des postes (ARCEP) launched a public consultation on its regulatory priorities, and new approaches to regulation in the digital era. This consultation is part

of a strategic review that ARCEP began in June 2015.

FRANCE: ARCEP authorises Orange to conduct 5G trialsOn 30 September 2015, the ARCEP issued an authorisation for Orange to conduct trials of 5G technology in the city of Belfort, France, up to the end of 2016. The trials will examine the conditions of use for frequency bands between 6 GHz and 100 GHz for 5G. These very high frequency bands are currently not being used by mobile networks, and represent a key component in achieving the performance objectives being set for 5G.

AmericasUS: FCC takes action to facilitate mobile broadband and next generation wireless technologies On 22 October 2015, the Federal Communications Commission (FCC) proposed new rules for wireless broadband in wireless frequencies above 24 GHz. It was previously assumed physical and technical limitations could not support mobile service in these bands. The FCC proposes to create new flexible use service rules in the 28 GHz, 37 GHz, 39 GHz, and 64-71 GHz bands.

CANADA: CRTC conducting project measuring the performance of broadband internet servicesOn 18 November 2015, the Canadian Radio-television and Telecommunications Commission (CRTC) announced that data was being collected from ‘Whiteboxes’ installed in the homes of 4,500 participants that will feed into the first national, independent broadband performance report. The data being gathered will provide insight into network performance, including actual connection speeds, and provide a better understanding of whether

certain internet services from participating internet service providers are delivering speeds as advertised.

ENERGYEuropeEU: European Commission announces key energy infrastructure projects to integrate Europe’s energy markets On 18 November 2015, the European Commission (EC) adopted a list of 195 key energy infrastructure projects which will form key building blocks of the EU’s Energy Union. The projects – known as Projects of Common Interest (PCIs) – will benefit from accelerated permitting procedures and improved regulatory conditions and may be eligible for financial support from the Connecting Europe Facility (CEF). A budget of €5.35 billion has been allocated to trans-European energy infrastructure under the CEF from 2014 to 2020.

UK: Ofgem reports on regional differences in network chargesOn 23 October 2015, the Office of Gas and Electricity Markets (Ofgem) published a report on regional differences in the way costs for transporting energy are recovered from bills. This follows the Energy and Climate Change Select Committee’s inquiry into energy network costs. The report provides information for the Committee and other stakeholders as to why energy consumers in different parts of Great Britain pay different electricity and gas distribution network charges.

OceaniaNZ: Commerce Commission adjusts Transpower’s maximum allowable revenues

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On 11 November 2015, the Commerce Commission of New Zealand (CCNZ) completed its review of Transpower’s proposed update to the forecast maximum allowable revenue (MAR) for the 2016-17 to 2019-20 pricing years. The yearly adjustments ensure that Transpower does not under or over-charge consumers. The CCNZ has reduced the forecast MAR for 2016-17 from $NZ918.6 million to $NZ911.7 million.

OTHER INFRASTRUCTUREEuropeUK: National Audit Office releases report into economic regulation of the water sector On 14 October 2015, the National Audit Office released a report on the economic regulation of the water sector in England and Wales. The report found that since privatisation in 1989, most measures of service quality have improved markedly. Customer bills have increased to pay for these improvements. The average household bill for water and sewerage was £396 in 2014-15, which is a 40 per cent increase in real terms since privatisation, with most of the increase happening between 1990 and 1995 under the government’s initial price control.

Australian Regulatory Round-up COMMUNICATIONSACCC proposes to declare a Superfast Broadband Access ServiceOn 6 November 2015, the ACCC released a draft decision

proposing to declare a Superfast Broadband Access Service (SBAS). The ACCC proposes that telecommunications providers be allowed access to services with a downstream data rate normally more than 25 megabits per second (Mbps) on all fixed line networks. Access will not be required where the network operator is already facing competition from alternative fixed network providers.

ACCC will not oppose Vocus’s proposed acquisition of M2On 5 November 2015, the ACCC announced that it will not oppose Communication Limited’s (Vocus) proposed acquisition of M2 Group Limited (M2). The ACCC concluded that this was primarily a merger between two complementary businesses. Significantly, the merged firm will also face significant competition from Optus, Telstra and TPG. This merger consolidates the fourth provider in the market.

ACCC releases fixed line services decisionOn 9 October 2015, the ACCC released its final decision on the prices that other operators pay to use Telstra’s copper network to provide telecommunications services to consumers. The final decision will require a one-off uniform fall of 9.4 per cent in access prices from current levels for the seven fixed line access services. The new prices apply from 1 November 2015 until 30 June 2019.

ACCC completes pilot broadband performance monitoring and reporting programOn 11 September 2015, the ACCC released a report on a pilot that found that a program to monitor and report to consumers on the quality of broadband services could be readily established in Australia. The ACCC’s Pilot Broadband Performance

Monitoring and Reporting Program involved testing approximately 90 Melbourne-based volunteers’ home fixed-line broadband connections on various technologies over a three-month period.

ENERGYAER releases 2014-15 annual retailer performance and compliance reportsOn 23 November 2015, the Australian Energy Regulator (AER) published annual reports on the performance and compliance of the retail energy market. The performance report outlines energy retailers’ performance in 2014-15 in such areas as customer service, complaints, payment assistance to customers in financial difficulty and customers disconnected for not paying energy bills. The compliance report notes the AER took court action for breaches of the explicit informed consent obligations and issued infringement notices for breaches of life support and hardship customer obligations.

AER issues final decisions for QueenslandOn 29 October 2015, the AER issued final decisions on the revised revenue proposals submitted by the Queensland electricity distribution businesses Energex and Ergon Energy. The final decisions are expected to reduce the amount consumers pay for electricity in Queensland. As a result of these reductions, customer bills are expected to fall on average by 6.5 per cent or $95 per household over the 2015-2020 regulatory period.

AER issues final decision for South AustraliaOn 29 October 2015, the AER issued its final decision on the revised revenue proposal submitted by the South Australian electricity distribution business SA Power Networks (SAPN). The final

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decision is expected to reduce the total amount consumers pay for electricity in South Australia over the regulatory period. Customers will receive savings of approximately $203 over 2015-2016. Going forward, the AER expects there will be a slight increase each year in the network component of customer bills. Over the five years, this represents an average saving of five per cent or $101.

AER issues preliminary decisions for VictoriaOn 20 October 2015, the AER issued preliminary decisions for AusNet Services, CitiPower, Powercor, Jemena and United Energy, which are expected to reduce the amount consumers pay for electricity in Victoria. The preliminary decisions will be effective from 1 January 2016 and are expected to lead to savings of between $27 and $75 on the average Victorian household’s annual electricity bill over the next five years, depending on the distribution network servicing their home and whether the savings are passed on in full by retailers.

AER releases new electricity transmission roll forward modelOn 23 October 2015, the AER published a new version of the roll forward model (RFM) that applies to future electricity transmission determinations. The main change is that the new RFM allows the continuation of the partially as-incurred approach to recognising capital expenditure. The RFM also provides an option for selecting a forecast or actual depreciation approach to be used to roll forward the Regulatory Asset Base (RAB), and give effect to the AER’s Rate of return guideline, allowing for an annual update for the return on debt.

OTHER INFRASTRUCTURE

ACCC releases draft advice on amendments to the Commonwealth water charge rulesOn 24 November 2015, the ACCC released its draft advice on amendments to the Commonwealth water charge rules. The water charge rules regulate the charges imposed on rural water users in the Murray-Darling Basin. The current rules have been in place for five years and charging practices have evolved significantly over that time. In December 2014, acting on a recommendation of the 2014 Independent Review of the Water Act 2007, the Government asked the ACCC to conduct a review of these rules.

ACCC releases report into Darwin petrol marketOn 23 November 2015, the ACCC released its report into the Darwin petrol market. In comparison with the five largest cities (i.e. Sydney, Melbourne, Brisbane, Adelaide and Perth), Darwin regular unleaded retail petrol prices in the two years 2012-13 to 2013-14 were around 10 cents per litre (cpl) higher than they had been over the previous decade. The ACCC found there were essentially two main reasons for the high prices and profits in Darwin: the decrease in the number of independent retail sites, and weak retail competition.

ACCC finds waterfront improvement continues, though new entrants face challengesOn 6 November 2015, the ACCC released its annual container stevedoring monitoring report, which highlights the improved performance of the industry. Average stevedoring prices for the industry fell for the second consecutive year and, in real terms, are now at the lowest level recorded by the monitoring program. However, the ACCC is concerned that the existence of

entrenched and inadequately regulated monopoly port operators is adding costs to the economy and effectively amounts to a tax on consumers and exporters into the future.

ACCC grants exemptions to two wheat port terminals at the Port of BrisbaneOn 24 September 2015, the ACCC issued final determinations granting exemptions to Queensland Bulk Terminals (QBT) and GrainCorp from having to comply with Parts 3 to 6 of the Wheat Code at their Port of Brisbane bulk wheat port terminals. The ACCC considers that the two Brisbane port terminals face sufficient competition to warrant granting both operators exemptions from certain parts of the Code when providing services at their Brisbane facilities.

ACCC decides to accredit IPART as regulator of rural water charges for WaterNSWOn 23 September 2015, the ACCC issued its Final Decision to accredit the Independent Pricing and Regulatory Tribunal of NSW (IPART) as the regulator of WaterNSW’s infrastructure charges in the Murray-Darling Basin. The decision will take effect from 1 June 2016 for a period of ten years.

Regulatory Observer is a regular publication of the Australian Competition and Consumer Commission. For editorial enquiries and mailing list enquiries please contact Simon Haslock (simon.haslock@accc.gov.au).

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