2017/18 PRIORITIES. Enduring priorities. Priority focus area for 2017 Retail telecommunications

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1 PRIORITIES 2017/18

2 2017/18 PRIORITIES We aim to make New Zealanders better off. With that vision in mind, we have a number of enduring priorities as well as priority focus areas that we identify each year. These help us to focus our activity and resources. As part of a commitment to greater transparency and increasing understanding of what we do and how we do it, we have decided to publish our priorities each year. Enduring priorities There are a number of areas the Commission will always regard as a priority due to the potential significant impact on consumers, businesses or markets in New Zealand. Cases that involve significant harm to consumers or the potential for significant harm will be prioritised including product safety and construction cases. Credit issues and those impacting vulnerable consumers will also be prioritised due to the disproportionate impact on those affected. In the area of competition, cartels and anti-competitive mergers and conduct will always be prioritised because of the significance of the potential impact on markets and the economy as a whole. In regulation, there are a number of activities that will always be part of our work programme. These include our on-going obligations to monitor compliance with regulatory requirements, and take enforcement action where necessary. Priority focus area for 2017 Retail telecommunications Almost every New Zealander uses a mobile or fixed-line phone and broadband, meaning the telecommunications sector has the potential to have a significant impact on consumers. We have done a lot of compliance work with the sector and taken a number of cases, including in the last year against Trustpower for misleading consumers over the price and terms of a bundle offer, and Vodafone for false representations on invoices. Our work under the Telecommunications Act 2001 (Telecommunications Act) has been focused on wholesale access to promote retail competition. This has delivered improvements in retail price and value for consumers in terms of data and bundles with consumers now paying less for both mobile and broadband. Commerce Commission Priorities 2017/18 1

3 Despite this work, the sector continues to generate a high level of complaints from consumers. Combined with our concerns about service quality this indicates there is still work to be done. As a result of this and the potential impact of the sector, retail telecommunications is a priority focus area for us across both our consumer and regulation work. We will be focusing on the life cycle of the consumer experience seeking information and making a purchasing decision about a product, purchasing a product, using and paying for that product, engaging with the provider and dispute resolution. We will continue to use our full range of powers and regulatory tools, including enforcement, to address non-compliance with the laws we enforce. Our initial focus will be to provide consumers with information that helps them make informed purchasing decisions as well as to know where to go when they have an issue. We also anticipate receiving greater powers as a result of proposed changes to the Telecommunications Act which will assist us in addressing issues and protecting consumers. Consumer priority focus areas for 2017/18 Each year we receive thousands of reports from consumers and businesses. Around 500 of these will go on to be investigated after an initial assessment. We cannot investigate all potential breaches of the Acts we enforce, so we have to make choices. Our enduring priorities and our priority focus areas are part of the framework that helps us to make those choices. This year we have three consumer priority focus areas: retail telecommunications (as outlined above), responsible lending and credence claims. Responsible lending (including online lending) When specific consumer credit laws were introduced in New Zealand in 2003 we took an educative approach at first with lenders to assist them to comply with the new laws. We then took cases to set clear precedents on issues such as disclosure and fees. Unfortunately one of our first major cases relating to fees (MTF/Sportzone) took 7 years until we received a final decision from the Supreme Court. While waiting for the clear precedent on fees, we focused on the disclosure obligations on lenders in the industry and took a large number of cases, with a focus on the mobile trader sector. EXTENDED WARRANTIES GREEN & CLEAN Commerce Commission Priorities 2017/18 2

4 These cases increased after changes were made to credit laws in 2015 to strengthen consumer protection and increase penalties for breaking the law. The changes introduced responsible lending principles that mean lenders must make reasonable enquiries before signing borrowers up to a loan to ensure it meets their needs and they can afford it. Lenders must also help borrowers to make informed decisions, as well as act reasonably and ethically. Despite these cases, our investigations, industry monitoring and outreach activities indicate that there are still lenders failing to comply with the responsible lending principles. By failing to comply these lenders are not only breaching the law, they are potentially putting people at risk of hardship. We already have a number of active investigations and will prioritise responsible lending cases in 2017/18 to address and prevent harmful behaviour. Credence claims In addition, we intend to offer further information to lenders on complying in an online environment. As business models for the provision of credit continue to change in the digital age, we are regularly asked how the law and our guidelines apply to lenders offering credit online. Credence claims are those made about a product that cannot be easily verified by consumers. These are particularly common when it comes to food and country of origin. Many consumers make purchasing decisions based on credence claims for health or ethical reasons, often paying a premium price for the products. Finding out that credence claims about your preferred product are false or misleading can leave consumers feeling betrayed. False or misleading credence claims can also have an impact on New Zealand s reputation with tourists and in export markets. We have taken a number of credence cases in recent years including some involving yoghurt that wasn t yoghurt, alpaca products that didn t contain alpaca, and made in New Zealand bee pollen that was actually made in China. We also took a precedent setting case to the High Court involving nutritional supplements. The decision in this case made it clear that a representation of New Zealand made may be misleading if the key ingredients do not come from New Zealand, even if they are packaged or processed here. We will continue to build on our work to address false or misleading claims in this area by engaging with industry groups, undertaking advocacy and education activities with traders and taking more cases against those breaching the law. Commerce Commission Priorities 2017/18 3

5 Competition priority focus areas 2017/18 Competition is an important driver for productivity and economic growth in New Zealand. It creates incentives for businesses to innovate, improve efficiency and produce products and services at a price and quality demanded by consumers. We work to prevent anti-competitive behaviour to ensure markets work well in New Zealand, helping to ensure businesses can compete fairly and consumers have access to quality goods at competitive prices. In the last year we have had a number of significant cartel cases including in the real estate and livestock industries resulting in fines of more than $21 million to date. We have also declined merger applications such as Sky/Vodafone and Fairfax/NZME because of the potential effects on competition in New Zealand had the mergers proceeded. We will continue to prioritise cases where anti-competitive conduct or merger activity could substantially lessen competition and impact businesses and consumers. Key cases that remain in court will be prioritised. We will also look at ways to improve efficiency and transparency in our merger clearance process. Regulation priority focus areas 2017/18 Infrastructure plays a critical role in connecting consumers with services that are essential to everyday life, including electricity, gas and telecommunications. Our role is more extensive in these industries because of this and because strong, sustainable and efficient infrastructure is vital to the country s economic prosperity. We have regulatory responsibilities in many of these infrastructure sectors where competition is limited to ensure that consumers aren t disadvantaged by that lack of competition. In sectors where competition is limited, we help to make sure consumers get an appropriate quality of service and that they aren t overcharged. As well as incentivising regulated businesses to deliver strong, sustainable and efficient infrastructure, one of our goals in regulation is to ensure accurate information is available for consumers and businesses and that they are empowered to act on it. Our priority focus areas for 2017/18 are intended to further those goals. Greater understanding about the performance of infrastructure industries We will undertake work to improve our understanding of particular areas of performance and then share that knowledge with stakeholders. In the electricity sector we want to improve our understanding about investment levels and associated incentives in light of several instances of non-compliance with quality standards and Powerco s application for a customised price-quality path. Commerce Commission Priorities 2017/18 4

6 We aim to have a greater understanding about whether investment is sufficient to support strong and sustainable infrastructure which is important for security of electricity in New Zealand. This understanding will help us decide whether there is anything we need to change in our regulatory approaches to quality and investment. We will also share this information with other stakeholders who would benefit from knowing more in terms of the condition of assets and resilience of each network. In the airports sector having a good understanding of and access to information is very important, as our three main international airports prices are subject to information disclosure regulation, not price regulation. Following price setting events by Auckland and Christchurch Airports, we will undertake work to further our understanding about each airport s pricing intentions. We will also use this information to improve other stakeholders understanding about the level of returns the airports are targeting, amongst other aspects of performance that may be of interest. Making information about infrastructure industries accessible to a wider audience The performance of infrastructure industries is understandably the subject of significant public interest and scrutiny. Therefore, in addition to developing our own understanding about specific performance areas, and sharing that information with targeted stakeholders, we also want to ensure we provide more accessible information about the operation of these industries to a wider audience. This includes providing data in more engaging formats (such as video and infographics) as well as offering more general insights about the performance of critical infrastructure and other service providers. As an example, earlier this year we released one page summaries of each electricity distributor s performance. These summaries allow comparison across lines companies and we have been encouraged by the initial level of discussion about supplier performance that has been generated. Applying a similar approach for gas pipeline businesses is an obvious next step as part of other work to increase understanding about the performance of infrastructure industries. An increasingly efficient and effective process for assessing proposals by regulated suppliers Most electricity distributors in New Zealand are subject to price-quality paths that place limits on the revenue they can recover, and set minimum requirements on the level of network reliability they provide. There are two types of price-quality paths that electricity distributors can have. We set a default path for all businesses, which is the more generic and lower cost option. Any business then has the option to propose a customised path (or CPP) to better meet its own particular circumstances. Commerce Commission Priorities 2017/18 5

7 In 2013 Orion New Zealand was the first distributor to apply for a CPP to address their extraordinary circumstances after the Christchurch earthquakes. Since that decision was made we have consulted with stakeholders as part of our review of the rules, requirements and processes of regulation collectively known as input methodologies to make the CPP process more efficient and effective. In June of this year, we received an application from Powerco for a CPP to increase expenditure on the network including replacing or upgrading ageing assets including lines, poles and substations across its network. We intend to improve confidence in the process for future applicants by providing a proportionate, efficient and timely response to Powerco s proposal in a way that delivers maximum value for New Zealanders. Support of telecommunications legislative review The Government is currently undertaking a review of the Telecommunications Act, looking at the underlying regulatory settings for communications markets. It aims to ensure New Zealand has the right regulatory framework for communications networks from 2020, to meet the needs of consumers and businesses, and to help keep our economy growing. The Commission is expected to implement the new regime. We will continue to work collaboratively with the Ministry of Business, Innovation and Employment (MBIE) to help them with policy and implementation matters. Once the legislative process is complete, we will initiate a process designed to ensure we put the new regime on the best possible footing by 2020, starting work early, and engaging effectively with stakeholders. Commerce Commission Priorities 2017/18 6

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