Inception of Sector Regulator & Competition Law
From Advocatespedia, The Law Encyclopedia
Competition Law promotes efficiency, innovation, higher productivity and growth in the economy and is in consumer interest, offers wider choice, abundant availability, lower prices and is also in the interest of competitors and other market players. Competition law enables action against deviation from principles of competition in markets and restores contestability in markets. Regulation is broadly defined as imposition of rules by government, backed by the use of penalties that are intended specifically to modify the economic behaviour of individuals and firms in the private sector. Various regulatory instruments or targets exist. Prices, output, rate of return (in the form of profits, margins or commissions), disclosure of information, standards and ownership ceilings are among those frequently used. Sector Regulators have sector specific technical expertise necessary to determine access, maintain standards, ensure safety, determine tariffs, and ensure USO. Sectors that have natural monopolies, economies of scale/scope, network industries.
Competition law has one main objective which has become prevalent over time and is the maximisation of consumer welfare. This implies that competition law aims at efficiencies (allocative, productive and dynamic) on the market by ensuring the competitive structure is maintained and possibly strengthened (see Ehlermann and Laudati, 1997 and Huveneers, 2008).
On the other hand, sector regulation has three (possibly contradicting) objectives: promotion of effective competition, the internal market, and the users’ interest. However, the European as well as the Belgian laws give important margin of discretion to the regulatory actors on the ranking of those objectives and on the means to achieve them. In particular, the laws do not decide whether the regulators should actively promote the development of infrastructure competition as a soft industrial policy marker or merely control the market as a hard trustbuster (on those ambiguities, see Granham, 2005; Hocepied and de Streel, 2005). However, it is generally admitted that the part of sector regulation that deals with market power mainly aims to ensure efficiency by favouring competitive market structure or by mimicking the results of a competitive market structure.
In the European Union and thus in Belgium, there are two main instruments to guarantee effective competition in the electronic communications sector (i.e. the infrastructures for the services of the Information Society like fixed and mobile telephony networks, Internet connections, cable TV, satellite connections) that have converged over time, contrary to what happened in the US (Geradin and Sidak, 2005). On the one hand, there is the antitrust law that has been applied extensively to become a sort of ‘regulatory antitrust’. On the other hand, there is the sector regulation whose mode of intervention has been aligned on antitrust law methodologies to become a sort of ‘pre-emptive competition law’.
Such evolution is interesting because it questions the (remaining) differences between both instruments and their optimal coordination. This is an important question at a time when the Commission has just tabled proposals to reform the electronic communication sector regulation. This is also important for Belgium where the relationship between the competition authority and the sectoral regulators is one the tightest in Europe (see Devroe, 2007 and Valcke, 2007) and the recent governmental agreement of Leterme I seeks for an optimal allocation of competence between both types of authorities.
How does a Competition Authority achieve its objectives?
It is an ‘off-market’ regulator and intervention is usually ex-post
Maximum impact through minimum intervention; relies on market forces
Independent and objective – not prone to influence of market players: Limited likelihood of ‘capture’ Specialized forum for deciding competition issues
Applies competition principles uniformly across all sectors
Four basic elements of a modern competition law – anti-competitive agreements, abuse of dominant position (ex ante) combinations (ex post) and advocacy.
How does a Sector Regulator achieve its objectives?
It is an ‘in-market’ regulator; intervention is mainly ex-ante
Sets ‘rules of the game’ – entry & exit conditions, performance parameters, technical details, tariff, safety standards, access, etc
Direct control – price/quantity/quality
Provides a specialized dispute redressal mechanism
Sector regulation seeks to prevent inefficient use of resources through regulation
Competition law seeks to do it through market forces
Both aim to protect consumer interest
Relationship- Overlap/ Conflict
Conflict/overlap can arise on account of
Conflicting approaches – market vs. regulation. Regulatory intervention itself may generate or protect anti-competitive situation
Can be spurred by turf warriors:
• Market players-regulatory capture
Adverse effects on investments, mergers & acquisitions
Lessening of effective competition resulting in decrease in productivity, efficiency, economic growth and consumer welfare.
Can we do without either?
Concept of ‘sunset’ clauses
Role & focus, as well as expertise, of either is unique and cannot be acquired easily by the other
Competition law enforcement can overcome insufficiencies in regulations – e.g. predatory pricing, cartels, mergers
Sector regulator has ability to determine tariffs, set standards, etc. which are outside competition law
• contacts, meetings, joint working groups
• exchange of officials
• exchange of information
• right to participate in proceedings before the other
• formal referrals - optional or mandatory
• appeal to a common authority
• abstention –do not interfere in the other’s territory
• delineation of jurisdiction –by statute competition authority represented on sector regulator board.
Under World Common Law
• In Australia, the competition authority (ACCC) incorporates industry-specific regulators, e.g. telecom, electricity, gas
• The Canadian Competition Bureau is statutorily empowered to intervene before federal and provincial regulatory bodies in policy determination.
Regulatory forbearance where competition prevails.
• In Germany, laws recently amended to minimise parallel competencies and enhance coordination. Cartels and mergers exclusively in jurisdiction of competition authority (FCO). Mandatory consultation by law.
• In EU, competition guidelines/directives issued by EU provide that ex-ante rules apply only in absence of competition, and specify how relevant market to be determined
• In South Korea – head of competition authority is given Cabinet rank-helps in pushing pro-competitive agenda within Government
• In South Africa, sector regulations were initially exempted from the jurisdiction of competition authority, but later the exemption was withdrawn
• In Zambia, competition authority is represented on other regulatory boards. In addition, all sector regulators are required to consult the competition authority
• In France, a new law provides for mandatory consultation between radio & television sector regulator and competition authority. The sector regulator provides technical inputs while the competition authority applies competition law on the basis of given technical inputs. Competition authority retains full jurisdiction on competition issues.
• In UK, the OFT and the sector regulators have concurrent jurisdiction. Appeals lie to Competition Appellate Tribunal (UK CAT)
• In Japan, cooperation between JFTC and sector regulators is not statutory but is guided by government diktat. JFTC relies heavily on its advocacy role with regulators to prevent anticompetitive policies.
• In Finland, the competition authority signed an MoU in 2003 with the telecom regulator defining ways to eliminate overlaps
• The jurisdictions of the competition authorities and sector regulators are blurred in Sri Lanka, Botswana, Kenya and Pakistan. Conflicts are left to be resolved by courts
• If status quo is maintained, India will be in this league
Some Observations on International Best Practices
• Regulators have strength in technical areas
• Competition authorities have strength in economic/competition matters; principles set by them apply across all sectors
• Regulation should forbear or minimize as competitive markets emerge
• Appropriate coordination mechanisms at working level are important. Respect and consideration for each others roles/ strengths
• As far as possible, laws may delineate jurisdictions, and provide for consultation/ coordination procedures.
Options for Interrelationship
Mandatory Consultation provisions:-
France – legislation enabled co-operation – sector regulator must consult competition authority
Ireland – formal co-operation agreements in accordance with law
Germany – formal consultation by law
Zambia – statutory requirement on regulators to consult
Right to intervene - in sector regulation
UK - competition authority has statutory right to study existing as well as proposed sector regulations and issue a public statement-government responds within 90 days
Italy – opportunity to competition authority to air views to which sector regulator must respond
Canada – competition authority can intervene in a case before any federal regulator Giving statutory powers to competition the authority for some aspects of sector regulation
Mexico – competition authority’s opinion about absence of competition and determination of market power of an enterprise is the condition precedent for regulation of prices or of that enterprise by the sector regulator, e.g. civil aviation, railroad, gas
EU – Competition authority plays significant role in identification of relevant market, and then telecom regulator determines market power using competition benchmark before ex ante obligation can be imposed on identified enterprise
1) UPSE v. National Stock Exchange Limited
Here, various fee waivers and the low level of deposit requirements only with respect to the CD segment of NSE were considered completely at a variance with its conduct in other segments and were aimed at eliminating competition and discouraging potential entrants. The issue before the court was if it violates the relevant act.
Competition Commission of India relying on the number of factors provided that under the Competition Act, 2002 has attempted to determine if activities of NSE amounts to indulgence in abusing of its dominant position and violation of the provisions of the Act.
2) Shamsher Kataria v. Honda Siel Cars Ltd. & Ors
Appellant had filed the information against Volkswagen India, Honda India and Fiat India for violation of Section 3(4) and Section 4 of the Competition Act, 2002 as Original Equipment Manufacturers (hereinafter referred to as „OEMs‟) entered into agreements with Original Equipment Suppliers (hereinafter referred to as „OESs‟) and authorized dealers, which imposed unfair prices on the sale of auto spare parts and restricted the free availability of genuine auto spare parts in the market. Was there any violations? CCI in this case has rendered a landmark ruling on automobile ancillary products and services in the auto industry.
3) Maharashtra State Power Generation Company Ltd. v. M/s. Mahanadi Coalfields Ltd. & Anr.
The information in this case was filed under section 19(1)(a) of the Act by two state owned power generation companies in Maharashtra and Gujarat against CIL and its subsidiaries alleging contravention of the section 4 of the Act. They alleged that OP were dominant in the relevant market and were abusing this dominance primarily through the terms and conditions imposed in the Fuel Supply Agreements. The court in this case provided the constitutional mandate for state monopoly was raised by Opposite Parties placing reliance on Supreme Court ruling in Ashoka Smokeless Coal (P) Ltd. v. Union of India
4) M/s. Madhya Pradesh Power Generating Company Limited v. M/s. South Eastern Coalfields Ltd. & Anr.
Here, the SECL being the monopoly supplier was neither willing to negotiate the terms of coal supply agreement nor ensuring the supply obligations and therefore the terms and conditions of SECL were not fair and according to the object for which the informant was acquiring coal. It was held that while CCI worked to regulatory framework and formulation of policy, CCI did not exempt the applicability of the Act to SOEs. Additionally, although cases relating to FSAs and Coal India are in appeal, it does not look like CCI will be changing its approach towards other SOEs.
5) COMPAT in M/s. Excel Crop Care Limited v. Competition Commission of India & Ors.
In the case of Sandhya Organic Chemicals, for which the tablets are the sole product, COMPAT reduced the penalty to a tenth of the original sum ordered by the CCI, on account of its relatively small production capacity. The challenge was made to this as an issue. In the present case it has been rightly held that it was important to articulate the reasons as to why a particular percentage of penalties were being imposed and secondly, what would be the relevant turnover for such imposition.