Should we rely on the regulators?

The government is likely to introduce its media reform legislation into parliament this week, but what\u27s not in the Bills might be as important as what is, writes Jock Given THE two men who will umpire the buying and selling of Australia’s media are taking different approaches to the tasks that loom as parliament prepares to consider changes to ownership laws. One is keeping pretty quiet. The other is publicly brainstorming the future of media regulation. Chris Chapman is the quiet one. The agency he heads, the Australian Communications and Media Authority, was formed last year by merging the broadcasting and communications regulators. It administers the existing cross-media limits and the foreign ownership rules covering commercial and pay TV. If the government gets its way, these rules will go, though Chapman and ACMA will still have work to do. The rules preventing anyone controlling more than one commercial TV station in a market or two commercial radio stations will remain. A new rule will require at least five independent commercial media groups in metropolitan markets and four in non-metropolitan markets (the “5/4 voices test”). Foreign ownership will still be subject to the general law of foreign acquisitions and takeovers, overseen by the Treasurer. But because the detail of the proposed amendments has not yet been publicly released, Chapman has not said much about how ACMA will approach any mergers and takeovers that result. Graeme Samuel at the Australian Competition and Consumer Commission has had a lot to say. The government is not proposing any changes to the Trade Practices Act, which he administers, but he has been making speeches, and his agency published a paper in August setting out the framework it intends to use to assess future media mergers. The telecommunications branch was renamed the communications branch in March, with a wider brief, more staff and a “convergence section’ dedicated to emerging communications technologies and services. Government backbenchers and others nervous about how much consolidation will occur if the laws change need to look beyond the detail of the 5/4 voices test. As well as listening carefully to Samuel and reading closely the recently-released Media Mergers paper, they might find it useful to look at the competition regulator’s form over the last decade or so in using its existing powers to limit concentration and anti-competitive conduct in the media industry. It is these largely unchanged powers that will need to be relied on if the ACCC is to resist mergers spurred by liberalisation of media ownership laws. There is no plan to give Samuel’s ACCC a “media specific public interest test” for merging parties to satisfy, as recommended in the Productivity Commission’s March 2000 review of broadcasting legislation. This is very different to what was done when the telecommunications market was opened up to competition in 1997 and big “industry-specific’ chunks were added to the Trade Practices Act. The competition regulator got detailed schemes and special powers to manage interconnection, access and anti-competitive conduct in telecommunications. The government was worried the incumbent Telstra would be able to frustrate competition if the ACCC retained only the normal powers available to regulate other industries. Extensive use has been made of these schemes - Telstra thinks too much, though some in the industry think not enough. But the competition regulator has a solid record of testing the edges of its powers over media ownership. It surprised many, soon after commercial radio ownership was liberalised in 1992, by asserting that, although a merger might satisfy the new two-to-a-market rule under broadcasting legislation, it could still amount to a reduction in competition sufficient to infringe the test for mergers under section 50 of the Trade Practices Act. The Federal Court supported this interpretation, and it seems that this relationship between broadcasting and competition law will not be disturbed by the government’s planned changes. Mergers satisfying the 5/4-voices test, if it becomes law, will not necessarily satisfy the competition test. Hence the recent flurry of ACCC thinking and talking about media mergers, anticipating the market analyses that will be needed when it considers whether or not to take court action to prevent or unravel particular media mergers prompted by the removal of cross-media and foreign ownership limits. The thinking and talking suggest that changes in the communications industry demand new approaches to defining individual media markets, and deciding which markets matter most. Samuel’s speeches and the Media Mergers paper stress that concentration in the control of content “will become more important and will be an increasingly strong focus of the ACCC when assessing mergers.” Premium content like sport and movies are singled out as likely targets. As the number of ways of getting content to consumers increases - the “pipes,” as Samuel is fond of calling them - it will be harder to argue that this part of the media landscape is not competitive. Telstra’s copper network, turbo-charged with DSL technologies to deliver higher-speed broadband; the hybrid fibre-coaxial cable networks of Telstra and Optus that reach some parts of the major cities; satellite and terrestrial wireless broadband; 3G mobile phone networks; and perhaps, in the longer-term, fibre-to-the-node or the home, amount to a “cornucopia of possible networks,” says Samuel. If the ACCC is to be anything other than a turnstile for the aspirant aggregators of media power, it will have to identify other markets within which competition is likely to be substantially lessened. Markets for media content are not wholly new terrain for the competition regulator. In 1996, it stepped in to break up exclusive program supply agreements between the Nine and Seven networks and their affiliates in Darwin and regional Western Australia. The ACCC thought these deals were designed to hinder the chances of any new commercial stations in these markets. Additional, competitive licences were granted in both those markets after the ACCC’s court action. When the ACCC examined the 2002 Foxtel/Optus content sharing agreement, two of the markets where it thought a substantial lessening of competition might occur were those for the acquisition of content and for the supply of whole TV channels to third party pay TV operators, like TransACT in Canberra and Neighbourhood Cable in country Victoria. The ACCC now says it is going to focus on three content markets: the supply of advertising to advertisers; the supply of content to consumers; and the acquisition of content from content providers. Despite the proposed emphasis on content markets, Samuel is not suggesting control of the “pipes” will be unimportant. Indeed, the ongoing public battle between the ACCC and Telstra seems likely to stay one of the fixtures of communications policy. This erupted most recently over the terms of access to any fibre-to-the-node network that Telstra might build. The ACCC has also stated publicly that Telstra should be forced to divest its 50 per cent shareholding in pay TV operator Foxtel, although the government rejects this. Clearly, the ACCC still thinks control of the pipes matters, but it may not be a central issue when it considers the sorts of mergers between TV and radio stations and newspapers that may follow the proposed removal of cross-media rules. There are two ways the ACCC could get involved in a media merger. The most likely is that parties could seek “informal clearance’ for a transaction - say, a plan for a company controlling a television network, like PBL, to take over a newspaper group, like Fairfax, currently prohibited under the cross-media rules. This is how Foxtel and Optus approached their planned pay TV content sharing agreement. If, after conducting market analyses, the ACCC decides the transaction will not result in a “substantial lessening of competition,” it can advise the parties and the public that it does not oppose the transaction, and will not go to the courts to seek an injunction to stop it. This doesn’t prevent third parties taking action, but in practice, it is close to a guarantee that the transaction can go ahead. If the ACCC decides the transaction may result in a “substantial lessening of competition,” it can seek court-enforceable undertakings from the parties. Typically, these are undertakings to sell some of the assets of the merged entity. If the parties accept them, the regulator may agree not to oppose a restructured proposal. If they don’t, or if the regulator thinks nothing can be done to overcome the substantial lessening of competition, it can decline to give informal clearance. In this case, the parties can still proceed with the transaction, but they do so knowing the ACCC will head to the courts to try stop them. Ultimately, it is the court’s decision, not the ACCC’s, whether the transaction results in a substantial lessening of competition under the legislation, so the parties may still win if the ACCC has got its analysis of the facts and the law wrong. Although this “informal clearance” process is not described in the legislation, it has acquired a degree of formality over time. When considering the Foxtel/Optus content sharing agreement, a good deal of information was published, and public submissions were sought. Samuel now says, “As is the case with all merger analysis, the individual circumstances and competitive implications of a media merger proposal will need to be considered during a comprehensive and public informal clearance process.” This will provide the opportunity for the parties and the public to express their views. The second way the ACCC can become involved is if the parties seek “authorisation” for the transaction. This is a statutory, public process, much less used, in which the parties have to satisfy the regulator that the public benefit from the transaction will outweigh any public detriment. The ABC tried this route when it planned to bundle its proposed pay TV channels with channels offered by other pay TV operators, in a way that seemed likely to be anti-competitive. The regulator rejected the application. For separate reasons, the ABC’s plans later collapsed. But there are clear limits to the ACCC’s power to stop media mergers. The Trade Practices Act does not give it a general power to seek undertakings that it believes may be publicly beneficial. It can only act where it believes a transaction is likely to result in a substantial lessening of competition in relevant markets. When it looked at the Foxtel/Optus content sharing agreement, it thought the arrangements originally proposed might have this effect in the content markets noted earlier, and in the markets for the supply of pay TV services to households and Foxtel’s distribution network. On this basis, it extracted various undertakings from the parties as the price for its informal clearance. The market definitions, and the ACCC’s assessment that the agreement would lead to substantially lessening of competition in them, were never tested in the courts, and a lot has changed since then. It is harder now to argue that pay TV is a separate market from free-to-air TV. The bigger the market, the more players in it, the more difficult it is to argue that the lessening of competition that will result from any merger will be substantial. Samuel’s “cornucopia of networks” makes it harder to argue now that the Foxtel/Telstra pay TV distribution network offers singular power to its operators, although the implicit thesis that all content distribution platforms, including fixed and mobile, are ready substitutes for each other, is still speculative. The Media Mergers paper suggests an important matter the ACCC will look to in deciding whether competition is likely to be substantially lessened: the quality of content. It will consider “whether a merged media business could exercise market power by reducing the quality of the content it provides consumers, which could include reducing the diversity of the content it provides.” In theory, there is no reason the regulator can’t assess the quality of the content likely to be supplied by the merged entity, just as it might choose to assess the quality of other goods and services to be supplied by merging parties in other industries. Although some of the products of the Information Age, and the assessment of their quality, may be novel, the concept is not. But in practice, such an assessment is likely to be fraught, because merging media players will inevitably argue that the combined entity will be better able to invest in high quality content - that’s precisely the argument they have used successfully to justify getting rid of the cross-media rules. If a substantial lessening of competition seems likely, the ACCC can seek an injunction to stop the transaction, but is otherwise constrained in what it can do. The primary purpose of the Trade Practices Act is to encourage competition as a way to improve outcomes for consumers, not to promote a range of other social or cultural goals, however laudable. When the courts have considered what “public benefit” might mean for the purposes of authorising otherwise anti-competitive conduct, they have said “anything of value to the community generally, any contribution to the aims pursued by society including as one of its principal elements (in the context of trade practices legislation) the achievement of the economic goals of efficiency and progress.” This includes economic development, business efficiency, industrial rationalization, employment growth, industrial harmony, as well as improvements in the quality and safety of goods and services. These are the sorts of factors the ACCC considers when contemplating undertakings that it might accept as the price of informal clearance of a transaction. Before clearing the Foxtel/Optus content sharing agreement, it extracted undertakings from Foxtel and Telstra to digitise their cable TV network (though this might have happened anyway) and to give rival pay TV operators access to their analogue and proposed digital networks to offer services to customers. It also got undertakings from Foxtel and Austar to sell their programming on fair terms to competitors TransACT, in Canberra, and Neighbourhood Cable, in some country Victorian towns. It is hard to imagine the ACCC or the courts endorsing the expansion of these factors to encompass the whole range of issues relevant to media policy, especially the qualitative aspects of content. And even if it did contemplate crafting undertakings about these factors, it is hard to imagine the ACCC departing from its preference for “structural undertakings” - selling some of the assets of the merged entity by a certain date - as opposed to “behavioural undertakings,” like those in the Foxtel/Optus arrangements, which require on-going monitoring. This is especially the case in an area like media and communications, where a separate regulator, ACMA, has been set up to monitor and regulate the industry according to statutory objectives, and given powers to ensure services are consistent with community standards. Communications and media regulation is Chris Chapman’s job, and no one should hold out too much hope that Graeme Samuel is going to do too much of it for him. The government, anxious to reassure its backbench, will pleased to hear Samuel talking up the strength of the ACCC’s existing powers, and with that, the likelihood that any merger frenzy will be tempered by ACCC intervention. But anyone worried about what might happen if the rules are changed the way the government has proposed will be best off extracting their safeguards in the legislation that emerges from the parliament, rather than hoping for the ACCC or ACMA to block mergers case-by-case. Those safeguards might include the “media specific public interest test” recommended by the Productivity Commission, or a tougher threshold than the 5/4 voices test, though neither is guaranteed to prevent a disturbing degree of consolidation. • Jock Given is the author of Turning Off the Television: Broadcasting’s Uncertain Future (UNSW Press, 2003). He teaches media law at the University of Melbourne. For a now dated, but still very useful discussion of the regulation of competition, diversity and ownership in broadcasting by the broadcasting and competition regulators, see Holly Raiche’s Competition, Diversity and Ownership in Broadcasting: Regulation by the ABA and the ACCC (Communications Law Centre, 1997). Photo: Graeme Samuel, Chair of the Australian Competition and Consumer Commission. AAP Image/Mark Graham. &nbsp