Opinion: Competition law needs an overhaul

ICT lawyer Michael Wigley examines whether the ComCom has to powers to ensure competition in the content market

In the following opinion piece ICT lawyer Michael Wigley considers the powers of the Commerce Commission to ensure competition in the content market during the migration from copper to government-backed fibre networks, given Sky TV's signficant share of the pay television market.

At the annual Telecommunications and ICT Summit in Auckland last week ICT Minister Amy Adams was asked what she might do in relation to the uptake of the UFB network. In reply she said:

“Competition law in New Zealand is very carefully regulated under the Commerce Act. You have the Commerce Commission sitting there as our competition watchdog with a number of powers, able to look at any allegations of inappropriate behaviours of dominant positions. So I’m very confident that they have the skills they need to investigate any allegation that arises in that space.”

The trouble is, skills don’t overcome the lack of tools available to the Commission. The two most recent Commission Chairs — Paula Rebstock and Mark Berry — have identified the problems around a key piece of the Act: section 36. This is often called the monopolisation or abuse of dominance provision. It’s a key provision for reviewing Sky TV's position.

Telcos are familiar with the s36 problem, spanning court decisions from the Privy Council Telecom-Clear interconnection decision decades ago through to the more recent 0867 Supreme Court judgment. There has been considerable well-reasoned criticism of the restrictive approach by the courts in interpreting s36. As things stand it is unlikely that many, if any, s36 cases will be brought as it is unworkable and wouldn’t capture many anti-competitive situations. I am aware of only one informed commentary that supports the current approach.

The reality is that an unworkable s36 can give large firms close to a free ride (much more so than in Australia). That doesn’t help the roll out of UFB, nor does it help our economy.

Even the Commerce Commission itself, in identifying the problems for New Zealand, notes the “potential for significant economic harm”, because addressing problems using s36 is proving challenging.

The main problem revolves around the strict application in New Zealand of only one test: the “counterfactual test”. This contrasts with Australia where, under similar legislation, several flexible tests are used.

The Commission used the 0867 case, as it said, to “urge, on appeal to the Supreme Court, the departure from Privy Council precedent and the adoption of a more flexible approach that, like Australia, recognises several alternative means of demonstrating whether a firm has taken advantage of its substantial market power, without relying solely on the counterfactual test.”

When starting an earlier review to address these problems then Commission Chair, Paula Rebstock, noted:

“Addressing the problem of anti-competitive behaviour by market participants with substantial market power under section 36 is proving challenging. Due to the potential for significant economic harm, the Commission is making this review a priority and will use an expert panel to provide clarity in this complex area.”

The position hasn’t improved under the current Commission Chair, Mark Berry, as the Commission lost its appeal. The status quo was largely confirmed. The main objective of the appeal – a move from the sole counterfactual test to more flexible tests – was not achieved. That objective will only be achieved if the Commerce Act is amended.

This largely leaves only the multiple firm provisions in the Act to deal with the Sky TV type of issues, such as the s27 restriction on certain two-or-more party contracts and arrangements. This is something that the Commission can address as to Sky TV, as most relevant issues involve contracts between at least two parties.

But not having an effective s36 is a big gap in the tool box and it would help if the Commission reactivated its expert review.

This is not to say that Sky TV would have breached the Commerce Act if the tests were more flexible, rather it is about recognising that the Commission does not have enough tools under that Act if there are problems.

There’s a need to look elsewhere – what about alignment with Australia, when competition issues are increasingly international? As Dr Berry commented:

“The [0867] decision has not delivered the alignment with Australian jurisprudence that the Commission had sought in terms of being able to employ alternative, lesser threshold, tests for determining whether a firm has taken advantage of its substantial market power.”

We are falling behind internationally. This gives a dominant provider a lot more freedom to act anti-competitively than in other countries such as Australia. Yet, as the Commission has identified, a robust approach is more important in small economies such as ours than in larger economies such as Australia, given how large firms can impact our small country.

Wigley is a lawyer specialising in ICT. He represents a number of telco stakeholders but the views here are his own.

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