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Commerce Commission Highlights For 2002

Media Release

Issued 24 December 2002-03 / 100

Commerce Commission highlights for 2002

Implementing three new regulatory control regimes and consolidating the new thresholds relating to anti-competitive behaviour and business acquisitions under the Commerce Act were significant highlights for the Commerce Commission in 2002.

"The Commission undertook significant preparatory work to support the full implementation of new regulatory regimes for the telecommunications, electricity lines and dairy industries," said Commission Chair John Belgrave.

In addition, the Commission took on new responsibility for enforcing a sixth product safety standard - the baby walker standard - and continued to strengthen its operational and corporate capabilities.

General Market

The Commission's activities during the year included:

* completing its first regulatory control inquiry for the Minister of Commerce on whether regulatory control of airfield activities is required at Auckland, Wellington and Christchurch International Airports, including a recommendation that Auckland International Airport be controlled;

* initiating civil proceedings against Bay of Plenty Electricity for allegedly restricting access to electricity metering services, and against a group of four eye specialists in Palmerston North for allegedly entering into a price fixing arrangement;

* initiating civil proceedings against vitamin companies Roche Products (New Zealand) Limited, Rhodia New Zealand Limited and BASF New Zealand Limited for cartel behaviour following a High Court decision on the limitation provisions of the Commerce Act;

* warning Fletcher Concrete over its activities in the cement and ready-mixed concrete markets;

* Giltrap City Toyota being fined $150,000 for entering into a price fixing agreement with other Auckland Toyota dealers;

* clearing National Gas Corporation's to acquire UnitedNetwork's gas pipeline assets; Genesis Power to acquire Energy Online; Coca Cola to acquire Rio Beverages and Cendant Corporation, which owns and operates Avis Rent-a-Car, to acquire Budget;

* authorising, with conditions, the Electricity Governance Board Limited proposed set of arrangements in the form of a rulebook for the self-governance of the electricity sector;

* declining an application by The Marketplace Company Limited for an authorisation of an arrangement that would require the market administrator to release bid and offer information two weeks after the bids and offers apply, on the basis that the proposed arrangement does not require authorisation under the Commerce Act;

* deciding to prosecute Aquanaut Pty Limited for alleged resale price maintenance - anti-competitive behaviour under the Commerce Act; and

* initiating its inquiry into the joint applications from Air New Zealand Limited and Qantas Airways Limited for market behaviour and structure authorisations under the Commerce Act.

Fair Trading

Fair trading investigations were completed in a wide range of industries, including the Commission's strategic priority areas of electricity, telecommunications, financial services, hidden conditions, misleading representations about the size of discounts and misleading representations relating to food.

Fair trading cases in 2002 included:

* Star Corporation Limited fined $48,000 plus court costs of $3,120 for misleading conduct regarding false statements about mobile telephone directories;

* Holiday Marketing fined $17,500 for misleading the public as to the nature of timeshare presentations it was promoting;

* Polynesian Airlines and Freedom Air fined $7,500 and $10,000 respectively for misleading advertising. The Commission also filed charges against Qantas and Air New Zealand for alleged misleading advertising;

* Mercury Energy and Meridian Energy fined $14,000 and $12,000 respectively for misleading advertising relating to electricity charges;

* Masterton Poultry Farm fined $10,000 for misleading claims about "free range" eggs;

* ANZ Bank fined $7,500 for a misleading MasterCard offer - with the courts acknowledging ANZ had to write off $2.3million as a result of the campaign as a whole;

* Rio Beverages fined $22,600 for misleading juice claims. The Commission also prosecuted Double R Softdrinks and commenced investigations into up to 12 other companies in the juice industry;

* Netguard pyramid scheme ceased trading as a result of a Commission investigation and Infinity Concierge's pyramid activities were stopped by court injunction sought by the Commission during an investigation; and

* Anthony John Hendon fined $20,000 after pleading guilty to 55 breaches of the Fair Trading Act relating to his businesses, Peach Holdings Limited, Hilltop Printing Limited and Mainland Media Group Limited.

In addition, the Commission warned consumers of health products to be vigilant when buying goods - both over the internet, and through direct marketing mailouts.

"Watch out for promoters who use phrases such as 'scientific breakthrough', 'miraculous cure', 'exclusive product', and 'secret ingredient', and if in any doubt, seek a health professional's advice", said John Belgrave.


Key achievements during the year in relation to the Commission's role under the Telecommunications Act included:

* consideration of applications for access determinations concerning interconnection between Telecom and TelstraClear's fixed networks and the wholesaling of various retail telecommunications services;

* issuing in November a determination in respect of the terms of interconnection between Telecom and TelstraClear's fixed networks;

* making substantial progress towards a determination relating to local residential telephone services under the Telecommunications Service Obligations (TSO) Deed;

* the preparation and public release of a series of discussion papers on different aspects of the new regime, including international benchmarking of interconnection prices, interconnection pricing methodology, and the calculation of the net cost of the TSO; and

* a programme of consultation with the industry.

Electricity Lines Businesses

Key achievements in the year in relation to the Commission's new responsibilities for the regulation of electricity lines businesses included:

* completion of a comprehensive audit of the fixed asset "ODV" valuations of the 29 electricity lines businesses and Transpower;

* commencement of a review of asset valuation methodologies;

* significant progress on the development of a threshold and control regime; and

* a programme of consultation with the industry

Dairy Industry

Key achievements in the year included:

* formulating the Commission's approach to meeting its responsibilities under the legislation and undertaking its first investigations;

* commencing the process of setting the discount rate for Fonterra's annualised share value; and

* commencing the determination into the dispute between Independent Dairy Producers and Fonterra about the application of the Dairy Industry Restructuring Act regulations.

Organisational change

Organisational changes in 2002 included the March arrival of Douglas Webb as Telecommunications Commissioner, a specific position established under the Telecommunications Act to implement the new regime. Fiona Bolwell and Terence Stapleton were also appointed in March as Cease and Desist Commissioners, new positions under the Commerce Act, whose sole role is to hear and determine applications for cease and desist orders.

In August, Chair John Belgrave was reappointed as Chair for a further two years and in November, former associate Commissioner Donal Curtin was appointed as a full member of the Commission and Shaan Stevens as an associate member.

Looking ahead

In the year ahead, the Commission expects to complete the development of the thresholds part of the electricity lines business regulatory regime. The Commission is also anticipating a further extension of its role in enforcing information standards, through a proposed regulation relating to the supply of motor vehicles.

"With the recent receipt of the Air New Zealand and Qantas application, pricing review determinations and other key decisions in the telecommunications industry, and ongoing work across the full breadth of our responsibilities, the Commission is set for another year of hard work and challenges", said Mr Belgrave.


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