Competition policy for breathing space

The Australian Competition Tribunal gives competition policy a fillip in the Sydney Airports Corporation decision.

Readers of this journal may be aware that, during this year, the Commonwealth Government is to review its national competition policy agenda. This had been embraced by governments of the Commonwealth and the States and Territories in 1995. As part of that review the government will not only re-examine the terms of the Competition Principles Agreement, the Competition Code but also Part IIIA of the Trade Practices Act which deals with questions of access to what one can generally describe as "essential facilities". When the terms of Part IIIA were enacted in 1995 this writer was one of those who criticised the nature of the drafting used by the government indicating that the legislation, as drafted, was a recipe for long-winded litigation, delays, expense, and frustration. To a large extent that prediction has been vindicated. Attempts to declare certain "essential facilities" have foundered on the whims of State Premiers and on litigation surrounding technical issues of the law. But, at least now, there is one decision that may give the Commonwealth Government some heart that the formula set out in Part IIIA at least has a chance of working (provided some of the technical hurdles are removed). Those technical hurdles will come under scrutiny during the year 2000 and it may be that the legislation will become more streamlined allowing for speedier resolution of access disputes.

The Australian Competition Tribunal has recently handed down its decision in the application for access to certain freight handling services provided by the Federal Airports Corporation at Sydney International Airport. That review was from a decision of the Commonwealth Treasurer to accept the recommendation of the National Competition Council (the NCC) that access should be granted to the relevant applicant in this case (Australian Cargo Terminal Operators Pty Ltd (ACTO)). It had sought access in November 1996 from various parties. The fact that we only have the decision of the tribunal in March 2000 is a vindication of my criticism that the legislation has been the subject of faulty drafting, would lead to inordinate delays, and to that extent would not achieve its main aims. Bear in mind that although the Competition Tribunal has now confirmed that access should be granted, there is still another set of hurdles to be overcome by ACTO (or rather its successor company) – to reach an agreement with the Federal Airports Corporation on the terms and conditions of access. If that is not agreed to by the parties the applicant can turn to the Australian Competition and Consumer Commission (the ACCC) for an arbitration. Once that arbitration has been delivered by the ACCC the parties may seek a review again from the Australian Competition Tribunal. One shudders to think how long that process might still take.

Putting aside the negative aspects of the process and the length of time this matter has taken to get to this stage, let us examine the crux of the decision of the Competition Tribunal on key features of the relevant legislation. In order to obtain a recommendation and a declaration of access the NCC and the Tribunal must be satisfied that the following criteria have been established by the applicant. These are set out in sections 44G and 44H of the Trade Practices Act. The six criteria (in broad terms) are that:

• Access (or increased access) to the service would increase competition in at least one market (whether or not in Australia) not being the market in which the relevant service is provided.

• It would be uneconomical for anyone to develop another facility to provide the relevant service.

• The facility is of national significance having regard to certain criteria.

• Access to the service can be provided without undue risk to health or safety.

• Access to the service is not already the subject of a satisfactory access regime.

• Access (or increased access) to the service would not be against the public interest. The critical criteria for the Tribunal to consider in this matter were, in my view, that:

• Competition would be increased; and

• It would be uneconomical for anyone to develop another facility.

The other criteria are also important but are not as critical in the writer's view. The problem I had with the original application as dealt with by the NCC and the decision is that the application was for access to a freight-handling terminal at Sydney Airport. It was not expressed as an application for access to the airport. There were at least half a dozen freight handling terminals already at Sydney Airport at the time this application was made. It was certainly not clear to me that it was uneconomical to develop another freight handling terminal at Sydney Airport. After all, six had been built; there was plenty of land at Sydney Airport; and it certainly would have been economical for others to have developed a freight handling service.

The Tribunal, however, felt that even though there was some doubt as to the actual nature of the application (evidenced by statements and contributions from a number of witnesses) that the appropriate way to examine the application was to identify as the particular facility that was to provide the relevant services to which access was being sought was Sydney Airport. It was not simply the freight handling terminals. When one looks at the facts from that point of view it is clear that it would be very difficult and not economical for anyone to develop another facility to provide these kinds of services – how many organisations would be able to build another airport to rival Sydney Airport? Another critical question was whether the grant of access would in fact increase competition in relevant markets. There was some real doubt as to whether one more player would do this. The Tribunal expressed the view that the relevant markets were ramp handling services and similar services. In those circumstances the addition of the applicant to players already in the market would increase the prospects of competition. In reaching that conclusion the Tribunal considered the evidence of a number of economists before reaching the view that the barriers to entry and providing the kind of facilities that would generate the competitive process were extraordinarily high (it would be very difficult to reproduce an airport and all of the things that go with an airport).

The next question was would the addition of one more player increase competition? Here the Tribunal had to differentiate between arguments as to words. The "defendant" (the access provider) argued that promotion of competition as used in sections 44G and 44H of the Trade Practices Act involved something stronger than mere encouragement of competition. The NCC argued that as long as there was a significant non-trivial increase in competition in the relevant market, competition was promoted. In the Tribunal's view it was not necessary to show that competition would necessarily be increased to show that it was being "promoted". (It chose this word as a key word.) It considered the notion as involving "the idea of creating the conditions or environment for improving competition from what it would be otherwise. That is to say, the opportunities and environment for competition [if a declaration was made] would be better than they would be without declaration." In the Tribunal's view this required it to adopt a two stage process in evaluating that question.

"The purpose of an access declaration is to unlock a bottleneck so that competition can be promoted in a market other than the market for the service. The emphasis is on access which leads us to the view ... [that the relevant section] is concerned with the fostering of competition, that is to say it is concerned with the removal of barriers to entry which inhibit the opportunity for competition in the relevant downstream market. ... The Tribunal considers that the promotion of competition involves a consideration that if the conditions or the environment for improving competition are enhanced, then there is a likelihood of increased competition that is not trivial." (See paras 206-107.) By looking to the future and the situation with the new player in the market the Tribunal reached the view that competition was likely to be increased, and that this would be a better outcome than if access were not granted. In concluding on this particular question the Tribunal noted that the Federal Airports Corporation had been in effect a lazy monopolist which did not see its role as promoting competition.

"Secondly, and more importantly, from an economic perspective new entrants can be a source of innovation and therefore competitive pressure. This is not a matter of the number of entrants but the variety of the competitive behaviour that wider entry would generate. The importance of this factor will, of course, vary between industry sectors depending on a range of factors, such as entry costs and the maturity of the sector." (See para 125.) On the basis of the evidence before it, the Tribunal formed the view that the granting of access would tend to "ginger up" the way in which the new owner of the airport conducted its activities thus enhancing competition. The remainder of the decision of the Tribunal considered other aspects of the legislation which need to be assessed in such an application. Technical questions, which will be relevant in future applications for access, were discussed. What is important, however, is that the Tribunal made a very clear decision to be very open minded in its view as to how terms such as competition and access were to be evaluated, pushing the line that would encourage new players to enter markets where there were high barriers to entry. These new players would tend to encourage other players in the market to adopt a more adventurous and forward-looking approach to competition generally. It also adopted a very critical evaluation of markets where there were significant barriers to entry and where threat of entry was diminished because of those barriers. Anything that might create a suitable environment for breaking down those barriers and enhancing competitive activity was to be encouraged.

As indicated at the commencement of this note, this is a major decision and one that will give great encouragement to those who wish to see the access regime maintained (although with the benefit of a more efficient and effective regime for processing applications). The decision will be an important part of the review process during 2000 and will enhance applications for access to other facilities of a similar nature where large companies or monopolies hold sway at the moment.

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