Case for wider public interest test in competition law

Treasurer Josh Frydenberg has neatly put the case for a wider public interest test in Australia’s competition law.

Treasurer Josh Frydenberg. Illustration: Sturt Krygsman

Treasurer Josh Frydenberg has neatly put the case for a wider public interest test in Australia’s competition law in warning he will block the proposed $13 billion CKI bid for APA.

The reason given for the move was concern over the fact two groups — CKI and State Grid/Singapore Power — effectively control all the east coast energy distribution.

Frydenberg’s concern is both well placed and happily politically convenient for him because the controlling consortiums are both Chinese.

Arguably if a local party teamed with CKI Frydenberg would have no argument, but whether the Hong Kong-based infrastructure entity would find some value is debatable.

The ACCC really should have been the party to say no to CKI and you could have bet your house on it reaching that decision if the roles were reversed and APA was buying CKI.

It cleared the deal because it could not prove a case for substantially lessening competition.

It seems FIRB recommended the bid be allowed but the politicians (Frydenberg) knocked it back.

Arguably that was the right call because APA is a national legend — having grown in value by 27 times since listing — in the midst of a multi-billion spending program. And while dominant in its field, it makes no sense to allow two parties to dominate east coast energy distribution.

The takeover did have one benefit in changing management, given Mick McCormack is arguably running out of time at 14 years and still going.

The decision came a day before the ACCC allowed Nine to take over Fairfax Media.

Former prime minister Paul Keating argues that deal should have been blocked on public benefit grounds.

He told The Australian: “The ACCC has today displayed its intellectual and policy weakness by consigning The Sydney Morning Herald, The Age and The Australian Financial Review to the ethical dustbin of Channel 9.”

His opinion is valid but the facts are in a world where Google and Facebook dominate digital advertising and are on track to erect impenetrable barriers to entry, a case for substantially lessening competition simply wasn’t there.

Are there public benefit or interest grounds to knock back the deal, and is the ACCC the right player to make that call?

That is where the debate should lie.

FIRB rules allow for rejection on national interest grounds.

So what would happen if it was a local bidder instead of CKI?

FIRB would have no jurisdiction and we would be left with two companies controlling east coast distribution, one Australian and one foreigner.

The case for a change to the law is magnified by the fact Australian industry is plagued by duopoly or oligopoly control.

Look no further than the royal commission and commissioner Ken Hayne’s oft-stated competition concerns and their impact on the ethical failures in the sector.

Under present law the Australian Competition Tribunal looks at mergers from a public benefit test but this is more an appeals body.

It is possible to ask the ACCC to authorise a deal but this happens when there are competition concerns and you want to argue public benefit grounds to clear the deal.

That is different from public interest grounds. In this case we have public interest grounds to knock back the merger.

Arguably the government could direct the ACCC to consider public benefit grounds for some takeovers but there is a real danger in allowing the politicians to get their nose into competition policy issues. This means strict criteria would have to be applied.

The Treasurer was at pains to say the nationality of the dominant distribution duopoly was irrelevant but that will be interpreted differently elsewhere.

Trade Minister Simon Birmingham just happened to be in Hong Kong when the decision was made, leaving him with the tough job of explaining the move.

After all, the government had no problems with CKI buying Duet Group last year, just after the same government rejected its involvement in the NSW energy privatisation.

Consistency is not a hallmark of FIRB policy.

Granted each case is different but on this occasion we have the same company being treated differently for substantially the same assets.

The attack on Chinese companies is unfortunate given the welcome cooling in relations between the two countries.

Chen Hong from the East China Normal University in Shanghai made clear in an interview this week that relations have declined in the past 18 months.

At the same time as Foreign Minister Marise Payne is in Beijing another arbitrary policy decision was made against China.

Thankfully at last Canberra has changed the rhetoric and is talking up the relationship.

Right call on Fairfax

The ACCC made the right call on the Nine takeover of Fairfax. In an unusually defensive and longwinded press release accompanying the decision, ACCC boss Rod Sims went out of his way to warn other media companies not to expect the same treatment.

The rumoured deals between News Corp and Seven and between Ten and Seven would both face more questions from the regulator.

He noted: “While the merger between these two big-name media players raised a number of extremely complex issues, and will likely reduce competition, we concluded that the proposed merger was not likely to substantially lessen competition in any market in breach of the law.

“The shift to online and the huge reduction in hard-copy classified advertising revenue have changed the media landscape irrevocably.”

Sims noted “the impact of some of these changes is demonstrated in the approximate halving of advertising revenue from Fairfax’s digital and print mastheads in the last five years”.

This is an important pointer to the coming ACCC paper on digital platforms because the commission has recognised their impact on the media market.

Paul Keating’s concerns on the impact of the Nine deal on the journalism profession are widely shared but sadly fall outside the control of the ACCC.

Alibaba’s data control

If the ACCC is worried about the dominance of Google, Facebook and others, lucky it is not in China, which bans competitors like ­Google.

This means Alibaba controls the largest payments system in country, is the largest online shopping platform, owns a string of supermarkets and pharmacies, and works with local governments on traffic flows — and the list goes on.

The artificial intelligence revolution is based on data so you have to say Alibaba, Tencent (WeChat) et al have a lion’s share of consumer data.

What chance does a competitor have in that space, and what impact does this have on the rest of the world given China’s growing importance?