Commission warning to Toll NZ Limited

Commission warning to Toll NZ Limited: behaviour at risk of contravening Commerce Act

The Commerce Commission has issued a warning to Toll NZ Limited (formerly Tranz Rail Limited) that the Commission found evidence indicating that Tranz Rail's conduct in certain New Zealand rail markets over a period from 1997 to 2002 risked contravening the Commerce Act, and that the repetition of such conduct would result in the Commission taking further enforcement action.

The Commission's investigation centred around allegations that Tranz Rail was acting in an anti-competitive manner by using its dominant position in the market for the provision of access to its national rail network market to reduce competition in the rail passenger excursion and charter market. Tranz Rail denies that it contravened the Commerce Act.

Tranz Rail and its predecessors provided access to its national rail network for certain heritage train operators for many years. Those operators were members of the National Federation of Rail Societies (NFRS), now known as the Federation of Railway Organisations in New Zealand.

Chair Paula Rebstock said that the Commission's investigation found evidence that in 1997 Tranz Rail altered its access pricing and other requirements for third party use of the rail network. "In the Commission's view, Tranz Rail's conduct risked hindering competition in a number of ways."

Tranz Rail replaced its cost-based access pricing system with one based on the fares set on the Tranz Scenic scheduled services.

"Tranz Rail's access charge was, in the Commission's view, set too high because of a failure to make allowance for the fact that the services offered by the heritage operators on certain routes, particularly the Tranz Alpine route, were quite different."

In addition, the Commission's evidence shows that under the new regime, Tranz Rail started charging third parties the same rate whether or not they supplied their own rolling stock.

The evidence indicates that heritage operators paid Tranz Rail as if they were hiring Tranz Rail's rolling stock, even when they were actually using non-Tranz Rail rolling stock. The Commission considers that "heritage operators may have been deterred from using train carriages and locomotives supplied by other operators, as it would not have been economically viable."

The Commission's investigation also found evidence that in 1997 Tranz Rail introduced additional restrictions on heritage operators using wooden-bodied carriages with open platforms on lines where there were opposing trains or level crossings over major roads.

"This could have had the effect of making the running of trains using this type of heritage rolling stock generally not viable because of route non-availability or overly long schedules," Ms Rebstock said.

Ms Rebstock said that while the Commission considered Tranz Rail's behaviour was at risk of being anti-competitive, a subsequent return to its original approach to access pricing and other requirements had overcome the issues raised by the Commission's investigation.

"The Commission has made it quite clear to Toll NZ Limited that any resumption of such behaviour would be likely to attract Commission enforcement action," Ms Rebstock said.

Background

The Commission's investigation considered the allegations that Tranz Rail's conduct with respect to access pricing and safety restrictions constituted a contravention of s 36 of the Act. At the time of the initiation of the alleged breach, s 36(1) provided that:

No person who has a dominant position in a market shall use that position for the purpose of -

(a) Restricting the entry of any person into that or any other market; or

(b) Preventing or deterring any person from engaging in competitive conduct in that or any other market; or

(c) Eliminating any person from that or any other market.

Subsequently, on 26 May 2001, s 36 was changed from prohibiting the use of a dominant position in a market for a proscribed anticompetitive purpose, to prohibiting the taking advantage of a substantial degree of power in a market for a proscribed anticompetitive purpose. Although Tranz Rail's behaviour continued beyond this date, the assessment focuses on dominant position, on the grounds that if Tranz Rail were found to have contravened the former s 36, it would be likely to have contravened the amended s 36.

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