AUSTRALIAN COMPETITION TRIBUNAL
Wednesday 18 November 1998
RE: 7-ELEVEN STORES PTY LTD, INDEPENDENT NEWSAGENTS ASSOCIATION, AUSTRALASIAN ASSOCIATION OF CONVENIENCE STORES INC.
STATEMENT OF TRIBUNAL
The Tribunal is about to publish written reasons for its decision on five applications for review. As an aid to understanding our formal decision as it is announced, the Tribunal proposes first to briefly summarise its main conclusions. This summary is not in any way to be treated as a substitution for or a qualification of the published reasons of the Tribunal.
In Applications Nos. 6 and 7 of 1997 and 1, 2 and 3 of 1998 7-Eleven Stores Pty Ltd, the Independent Newsagents Association, and the Australasian Association of Convenience Stores sought a review of determinations made by the Australian Competition and Consumer Commission on 12 December 1997, concerning the established systems for the distribution of newspapers in Victoria, and newspapers and magazines in New South Wales, the Australian Capital Territory, and Queensland. The established systems had for many years operated under a total of 12 authorisations granted by the Trade Practices Commission in the years between 1980 and 1985.
The determinations under review revoked these authorisations, and granted substitute authorisations to remain in force until 1 February 2001 which authorised the existing arrangements to continue until that date.
Before the Tribunal neither the applicants for review nor the parties who intervened sought to challenge the conclusions of the Commission that there had been material changes in circumstances since the authorisations were granted, and that there was no net public benefit which justified the continuation of the original authorisations. The differences between the applicants and the other parties at the hearing was only as to the appropriateness of granting substitute authorisations and, if so, whether the substitute authorisations should continue for as long as 1 February 2001.
Notwithstanding the approach taken by the applicants and the intervening parties, the Tribunal has reviewed the evidence before it and has concluded that there have indeed been material changes in circumstances that require that the 1980 to 1985 authorisations be revoked. In addition to the changed circumstances identified by the Commission, the Tribunal considers that there have also been important changes in the wholesale and retail distribution of magazines. Over recent years the major newspaper publishers have broadly vacated the publication of magazines, and one former newspaper publisher, the ACP Group, has vacated newspaper publication, while continuing to publish magazines. Since the decision of the Tribunal in the 7-Eleven Stores case in 1994, the commercial practices of the magazine distributors have diverged from the authorised system, and now differ significantly between distributors. The Tribunal has concluded that the overall picture since 1994 is of a distribution system for magazines in which the suppliers have in effect elected to deregulate themselves and are doing so with increasing resolve.
The Tribunal in the 7-Eleven decision in 1994 had foreshadowed the need for the markets for the distribution of newspapers and magazines to be deregulated, and suggested that the bad features of the authorised system should be removed within about three years.
The Tribunal has found it significant that in the time since 1994 the participants in the markets for the distribution of newspapers have taken very little action to change their distribution systems. The evidence suggested that even in the six months between the publication of the Commission’s determination and the hearing before the Tribunal, the main participants, the publishers and the newsagents, had not taken constructive steps to develop any systematic or integrated plan for change. The evidence suggests that in their own private interests they had chosen to allow the authorised systems to run for as long as possible.
The Australian Newsagents Federation Limited in particular argued that a transition period was necessary to allow negotiations to take place between the parties. The Tribunal has concluded that independent negotiations between the parties cannot be relied on to reach a mutually satisfactory, socially beneficial outcome during the transition period proposed by the Commission. Moreover, the Tribunal has concluded that whilst the interlocking contracts established between publishers and newsagents, and between the newsagents and sub-agents, in accordance with the authorised Rules of the Newsagents Councils remain enforceable, they impose contractual constraints on the parties which could be enforced by a minority of participants in the market to inhibit managed change. In the Tribunal’s opinion, a substitute authorisation which continues in full the authorised system until 1 February 2001 would not provide a transition period in any conventional sense during which managed change would occur, but rather would be a period of grace for the publishers and the authorised newsagents to continue the traditional system.
Notwithstanding these conclusions, the Tribunal considers there is merit in some of the arguments put forward in favour of allowing time during which alternative arrangements can be put in place. However, the simple continuation of the present authorisation for a further period does not represent the only option for effecting necessary change. The Tribunal has considered alternative processes likely to encourage change.
The Tribunal considers that the unravelling of the long established arrangements requires that distinctions be drawn between different elements of the presently authorised conduct, and that substitute authorisations should be made which impose different time scales for deregulation on those elements. The Tribunal considers that the following elements of the previous authorisations require separate treatment.
· The wholesale distribution of magazine publications;
· The wholesale distribution of newspapers to the so called “look-alikes” (that is to substantial newsagents who are not authorised newsagents under Rules of a Newsagency Council;
· The wholesale distribution of newspapers by newsagents to sub-agents generally; and
· The home delivery of newspapers.
The Tribunal considers that the current systems for the delivery of newspapers on the one hand and magazines on the other hand are not inextricably interrelated. The distribution system for magazines is separable and in the opinion of the Tribunal capable of separation reasonably promptly. The magazine publishers have, to a large extent, already moved on their own initiative down the track of deregulation. The Tribunal has concluded that the authorisations, insofar as they relate to the distribution of magazines, should run to 1 July 1999 but not beyond that date.
The evolution of look-alikes was not anticipated when the distribution systems were first established. The Rules presently deny the look-alikes the benefit of an exercise of the publishers’ commercial judgment to make direct supply of their publications, and compel each look-alike to obtain newspapers from another small business retailer that is likely to be its main competitor in the area. The Tribunal considers that the anti-competitive detriments to the public flowing from the present restraints on look-alikes are so severe that there can be no public benefit in allowing the restraints to continue other than for a short time to allow those immediately affected to take stock of their likely positions once the prohibition against the direct supply of newspapers by publishers to look-alikes is removed. Accordingly, the Tribunal has concluded that the authorisation of the provisions in the Rules which restrict the freedom of each publisher to make its own individual commercial judgment concerning the supply of its publications to look-alikes should not be continued beyond 1 July 1999.
On the topic of the supply of newspapers by an authorised newsagent to sub-agents, submissions made on behalf of the Australian Newsagents Federation sought the continuation of that system until 1 February 2001 to ensure a seamless change to deregulation. The Tribunal has found a number of arguments in support of that proposal to be unconvincing, and also finds it disturbing that the parties to the authorisations so far have not formulated programs for change. Nevertheless, the Tribunal has concluded that the public interest is likely to be best served by allowing the parties involved in the wholesale distribution of newspapers to sub-agents time to formulate plans for change. Against this, however, the Tribunal must give weight to the severe anti-competitive detriment which arises from the present system. The main feature of the existing system for the distribution of newspapers which the Tribunal in 1994 recognised as containing “defensible elements” concerned the provision of a low-cost, efficient and timely means of home delivery of newspapers. This feature is not dependent on the distribution of newspapers to sub-agents through authorised newsagents. The Tribunal has concluded that the restrictions in the authorised Rules which mandate that sub-agents shall only be supplied by the authorised newsagent for a designated territory should cease to be authorised from 1 February 2000.
In the case of the home delivery of newspapers, the Tribunal recognises the importance of the low-cost, efficient and timely home delivery system which has been the central justification for the authorised distribution systems in the past. Again it is disturbing that the parties to the distribution system have not progressed further with the planning for change. Nevertheless, the Tribunal considers that substitute authorisations should be made in respect of the systems for home delivery until 1 February 2001. It is clear that the independent planning by the publishers of new distribution systems will be complex and time consuming. Further, as planning develops, there may be aspects of proposed changes to the home delivery system that will require further authorisations. Time should be allowed for that process.
The formal decision of the Tribunal is as follows:
(1) That the 12 authorisations identified in the applications for review be revoked.
(2) Further authorisations be granted in substitution of the authorisations hereby revoked, as follows:
(a) until 1 July 1999 in all respects to the arrangements hitherto authorised.
(b) until 1 February 2000 in respect of the arrangements hitherto authorised, except
(i) in respect of the distribution of magazines
(ii) in respect of any prohibition or restriction on publishers or any of them from supplying all or any of their publications to any outlet other than the authorised newsagent in a territory designated under the Rules of the relevant Newsagency Council.
(c) until 1 February 2001 in respect of the home delivery of newspapers.