Should competition regulator compete to regulate?
The war has begun and there will be many more battles and skirmishes before it is over.
By KG Narendranath & Gireesh Chandra Prasad, TNN |
The war has begun and there will be many more battles and skirmishes before it is over. The Competition Commission of India has recently asked the telecom regulator , TRAI to drop the latter’s plan to create an “additional regime ” of merger regulation in the telecom space as per new criteria since it might not “coincide with ” the commission’s own merger code . CCI’s conviction is that the Competition Act defines the term combination ’ broadly , filling the post-1991 vacuum of competition-related merger provision in Indian laws .
Trai has proposed a cap of 40 % market share and no less than four players in each “telecom circle ” as part of its merger regulations . It said its intention is to examine mergers for their competition effects.TRAIs move is perceived by the Competition Commission to be impetuous, redundant and capable of creating confusions . It could add to telecom enterprises ’ compliance cost , the commission feels .
The conflict between competition regulators and other sectoral regulators and government policies is a global one, with various countries witnessing its consequences in one way or the other .In India ,the saga has just begun ,as the CCI is soon to be able to enforce the Act .
To understand what seems to be a turf war but what could be a much more serious policy puzzle , it is essential to note what the competition regulators are concerned about : their mandate is to avoid anti-competitive behaviours like abuse of dominant position and pre-empt anti-competitive tendencies.
This explains why they want to oversee certain combinations of persons or enterprises doing some economic activity. In India, the Competition Act , passed by Parliament recently , provides for mandatory notification to the CCI of any merger or other forms of combination above certain thresholds . This is to enable the regulator to examine whether the combination would have an “appreciable adverse effect” on competition in the relevant market. And the market in this context is defined in terms of natural geographical territories – places where the goods and services are sold— but not by artificially divided markets such as the telecom circles.
That apart , many other forms of combinations—including acquisition of assets including market presence in a given geographical territory—would also come under CCI’s scrutiny . So , CCI proposes to do what TRAI has proposed and look far beyond that . That is , even after TRAI okayed a merger proposal as per its criteria , the CCI could give it a thumbs down . This , CCI warns , could lead to “forum shopping .”
The merger regulation proposed by TRAI might fail to thwart many anti-competitive practices . For instance , privately held corporates could work out business (market ) sharing arrangements internally without any restructuring of equity that would catch TRAI’s attention .
Trai’s is not the only case of an alleged interference with CCI’s mandate.
CCI, like most other competition regulators in the world , believes that sectoral regulators would do well to deal with financial , technical and quality aspects with a view to taking care of the interests of investors and consumers and even the public at large , but not with competition per se . Of course , they ought to have the goal of introducing competition through their policies as and when there is no conflict between their other objectives and a competitive market . Sectoral regulators would do well to use their policy tools to bring down natural monopolies and enable networked industries to untangle and operate in a competitive market . But they don’t have to replicate the competition regulator’s role .
Trai has proposed a cap of 40 % market share and no less than four players in each “telecom circle ” as part of its merger regulations . It said its intention is to examine mergers for their competition effects.TRAIs move is perceived by the Competition Commission to be impetuous, redundant and capable of creating confusions . It could add to telecom enterprises ’ compliance cost , the commission feels .
The conflict between competition regulators and other sectoral regulators and government policies is a global one, with various countries witnessing its consequences in one way or the other .In India ,the saga has just begun ,as the CCI is soon to be able to enforce the Act .
To understand what seems to be a turf war but what could be a much more serious policy puzzle , it is essential to note what the competition regulators are concerned about : their mandate is to avoid anti-competitive behaviours like abuse of dominant position and pre-empt anti-competitive tendencies.
This explains why they want to oversee certain combinations of persons or enterprises doing some economic activity. In India, the Competition Act , passed by Parliament recently , provides for mandatory notification to the CCI of any merger or other forms of combination above certain thresholds . This is to enable the regulator to examine whether the combination would have an “appreciable adverse effect” on competition in the relevant market. And the market in this context is defined in terms of natural geographical territories – places where the goods and services are sold— but not by artificially divided markets such as the telecom circles.
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So, TRAI’s proposals, if implemented , could create many problems . TRAI defines mergers merely in terms of acquisition of equity and merging of licences, whereas the term ‘combination ’ in Competition Act includes “a merger or amalgamation and acquisition of control , shares , voting rights or assets .” The CCI says any substantial acquisition of equity by one telecom firm in another amounts to “acquisition of control ” and would come under its scrutiny if above the threshold . That apart , many other forms of combinations—including acquisition of assets including market presence in a given geographical territory—would also come under CCI’s scrutiny . So , CCI proposes to do what TRAI has proposed and look far beyond that . That is , even after TRAI okayed a merger proposal as per its criteria , the CCI could give it a thumbs down . This , CCI warns , could lead to “forum shopping .”
The merger regulation proposed by TRAI might fail to thwart many anti-competitive practices . For instance , privately held corporates could work out business (market ) sharing arrangements internally without any restructuring of equity that would catch TRAI’s attention .
Trai’s is not the only case of an alleged interference with CCI’s mandate.
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The Electricity Act through its Section 60 makes an attempt to enter the domain of competition regulation . So does the Petroleum and Natural Gas Regulatory Board Act which has sourced the clause on restrictive trade practices from MRTP Act. In fact ,the Competition Act anticipates such problems and offers to solve them through a provision which other regulators can use to refer a dispute to the CCI. CCI, like most other competition regulators in the world , believes that sectoral regulators would do well to deal with financial , technical and quality aspects with a view to taking care of the interests of investors and consumers and even the public at large , but not with competition per se . Of course , they ought to have the goal of introducing competition through their policies as and when there is no conflict between their other objectives and a competitive market . Sectoral regulators would do well to use their policy tools to bring down natural monopolies and enable networked industries to untangle and operate in a competitive market . But they don’t have to replicate the competition regulator’s role .
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It is a largely accepted theory that it sometimes needs an external (regulatory ) intervention to create and protect vigorous competition , which is touted as an antidote to the so-called ills and suicidal tendencies of free market . Paradoxically , almost every act of deregulation aimed at freeing the market , seems to necessitate a new form of regulation , often with anti-competitive effects . Start a SIP with as low as ₹500 with ET Money App!
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