Inter-Regulatory Spac: A case for Healthy Cooperation


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Inter-Regulatory Spac: A case for Healthy Cooperation

  1. 1. B-298 Competition Law Reports [Vol. 2Inter-Regulatory Space: A case for healthy cooperation Kaushal Kumar Sharma* Both of them in a true harmonious relationship. If it is not there, it would result in dilution in the quality of economic regulation in addition to other conflicts. In addition to sensitisation on the need of consultation, sector regulators may keep broad competition considerations in mind while formulating policies and taking decisions. The institutional framework for consultation is the crying need of the hour not only with Telecom regulator but also all the sector regulators. May be the Forum of Indian Regulators (FOIR) may be one such platform to evolve such an arrangement.An article appeared in The Hindu Business mandate given to CCI by the Act forLine on 2nd November, 2011. This is being regulating combinations across all thereproduced below. sectors, in order to avoid any potential jurisdiction conflict and the resulting Competition panel wants part in uncertainty for the industry” the note making telecom M&A rules from Mr. S L Bunker, Secretary, CCI New Delhi, 2nd November stated. The Competition Commission of Suitable mechanism India wants the Department of In the telecom sector, it would be Telecom to consult it for formulating desirable to evolve a suitable the new mergers and acquisition rules consultation mechanism involving for the telecom sector. the CCI and the DoT so as to provide In a communication to the DoT, the regulatory certainty to the businesses, Commission has said that under the it added. The note has been ratified by Competition Act, 2002, it has been Mr. Ashok Chawla, Chairman, CCI, mandated to examine M&As that are in a letter written separately to the DoT likely to have an adverse effect on Secretary, Mr. R. Chandrashekhar. “It competition levels in the market. is desirable to develop a suitable “Before the finalisation of the norms consultation mechanism involving on mergers and acquisitions for the the CCI and the DoT/TRAI,” telecom sector, the DoT may take into Mr. Chawla said in the letter. The account the provisions of the CCI’s suggestion is a departure from Competition Act, 2002 and the existing norms wherein the DoT * Commissioner of Income Tax, Ministry of Finance , Government of India, and former Director General & Head of Merger Control, Competition Commission of India. The views expressed are personal. He can be reached at kksharmairs@gmail.com150 COMPETITION LAW REPORTS (NOV-DEC 2011)
  2. 2. 2011] Inter-Regulatory Space: A case for healthy cooperation B-299 makes policies for the telecom sector and Acquisition (M&A) norms for after taking recommendations from the telecom sector. The CCI has the TRAI. identified interface with sectoral The competition regulator said that it regulators as a key priority. had the necessary resources and the Speaking at a conference organised expertise to analyse issues from a here today by CUTS International, legal, economic and financial a consumer rights body, CCI perspective which may not be Chairman Ashok Chawla said he available with sector-specific hoped to see a formal architecture regulatory authorities. If CCI has to be enabling an interface between his consulted, the DoT will have to send competition watchdog and all the TRAI proposals to it before a final economies regulators. view can be taken. Business Standard dated 25th November, 2011 May delay M&A rules A look at the sentiments in this media This could delay the final M&A rules, coverage would give an impression that which at present is being considered the CCI is looking for something that is by the Telecom Commission. The not a part of its original mandate and the Telecom Commission has already met whole atmosphere so created, as seen twice on this issue and is close to from the perspective of a layman/general finalising the new rules. reader, gives the impression of a turf war The TRAI had earlier sent its between the regulators in which CCI is recommendations in which it said that eyeing part of the domain of other sector merged entity could own up to regulators in this case telecom regulator. 25 per cent of the spectrum in a given Perhaps anything less than that does not circle and it could have a combined arouse media curiosity. However, the market share of 35 per cent. TRAI’s fact is that nothing can be farther from proposal said that mergers can also be truth in this impression if this indeed allowed if the market share reaches up were to be the general impression. The to 60 per cent but subject to scrutiny. question arises as to whether suchOn 24th November, 2011, a conference on reporting in the media reflects thebuilding ‘Friends of Competition’ was ground reality or it is merely theorganised by Consumer Unity &Trust perception of the media conditioned,Society (CUTS). The Chairman, perhaps , by similar situations havingCompetition Commission of India (CCI), arisen in the past in the interrelationshipwhile speaking on the inauguration of amongst other regulators of the countrythis event, remarked that one of the key in not so long past.focus areas for the CCI is the interface The mandate given in the Competitionwith other sector regulators. The Act, 2002 (the Act) to CCI is sectorimportance of this point becomes obvious neutral. Thus, the provisions of the Actwhen we look at a number of guidelines apply to all the sectors alike and the sameissued by different sector regulators, in applies to the mandate of promoting andthe past on the matters, relating to sustaining competition given to CCIMergers and Acquisitions. The remarks under the Act. The only exceptionsof the Chairman, CCI were reported the provided under Section 2(h) of the Actnext day in media as under: are in the nature of any activity of the Government relatable to the sovereign CCI eyes telecom M&A rules functions of the Government including The Competition Commission of all activities carried on by the India (CCI) wants a hand on Merger departments of the Central GovernmentCOMPETITION LAW REPORTS (NOV-DEC 2011) 151
  3. 3. B-300 Competition Law Reports [Vol. 2dealing with atomic energy, currency, appreciate even the competition issue, itdefence and space. The interesting part may become really necessary toin this exception is that first of all only understand the finer aspects of thesovereign functions of the Government technical components of the issue. Forare outside the application of the doing so, a frequent reference to the sectorpurview of the provisions of the Act. experts or the experts in the relevant sector regulator may be necessary. At various stages the CCI In reality, in the cases dealt with by the CCI so far, in a number of matters before has been more than it, the co-operation of these types had to conscious of the need of be engaged into – be it the cases relating consultation with other to DTH Service Providers, Stock Exchanges or electricity sector. Thus it is sector regulators across not only incidental for the CCI to carry different sectors out its duties effectively but is necessary for it to engage in continuous mutually beneficial interaction with the sectorHowever, when it comes to the four regulators, experts in the sectordepartments of the Government regulators as well as the sector expertsmentioned herein, all the activities available otherwise. The same wouldrelating to these departments are outside also serve the sector regulators equallythe purview of the provisions of the Act well. The modalities of these variousincluding the sovereign activities of the engagements would have to be workedGovernment. Having said that, we out by those entrusted with the task ofshould also appreciate that the sectors carrying out the mandate given underbeing dealt with by the sector regulators the Act or the respective statutes.are very well understood by the A reflection on the past would indicate thatrespective regulators in all technical at various stages the CCI has been moreaspects and, therefore, the sector than conscious of the need of consultationregulator is positioned better to with other sector regulators across differentunderstand the finer nuisances of any sectors. There have been instances whereissue relating to that sector except that of the CCI, even before taking the matter forcompetition for which the expertise lies further investigation, considered it fit towith the CCI. Competition, under the refer the matter to the sector regulator (Caseprovisions of the Act, generally, connotes No. 6/2009 ). On the other hand, there havefour functions. These are prohibition of been instances where the sector regulatorsanti-competitive agreements, abuse of have considered it prudent to seek thedominant position, regulations of opinion of the CCI before reaching any finalcombinations (popularly known as decision on any issue. This is indeed aMergers and Acquisitions) and healthy trend and augers well for thecompetition advocacy. It is not always co-operation amongst the differentvery easy to segregate the technical part regulators.from the competition element. What the Chairman, CCI, merely said inIrrespective of how much one tries, it is his remarks was that he desired a verynearly impossible to really reach a well- healthy architecture of the interface withreasoned finding on an issue relating to other regulators – a noble thought andany sector without involving either the desire indeed. His precise wordings inexperts from that sector, experts in that the news are sentiments in the rightsector regulator or the sector regulator direction and these were for a formalitself. As a matter of fact, to fully152 COMPETITION LAW REPORTS (NOV-DEC 2011)
  4. 4. 2011] Inter-Regulatory Space: A case for healthy cooperation B-301architecture enabling an interface (2)The Central Commission shallbetween the competition watchdog and advise the Central Government onall other sector regulators. As a matter of all or any of the following matters,fact what the Chairman said merely namely:reflected the aim of entire competition (i) xxx xxx xxxlaw landscape across the whole (ii) Promotion of competition,regulatory spectrum across the globe. efficiencyWhichever way we see it— either from and… (Section 79)the perspective of the letter written from (Section 86(2) says the same forthe CCI as reported in the media reporting state Commissions)of 2nd November, 2011 or the day followingthe CUTS event—if there is anything on The TRAI Act, 1997the wish list of CCI, it is an architecture of Functions of Authority:a suitable consultative machinery in tune (1) …, the functions of the Authoritywith the intent of the legislation which is shall be to-well understood by all the regulators. This (2)Make recommendations, eitheronly can ensure that the outcome of the suo motu or on a request from theregulatory interface is healthy. There is licensor, on the following matters,an urgent need for continuous namely:consultation between the two. Ideally (iv) measures to facilitatespeaking, there should have been no need competition and promotefor the CCI to have written a letter to the efficiency in the operation ofDoT on the issue if the contours of co- telecommunication services sooperation were well laid out which would as to facilitate growth in suchhave ensured that even before such Merger services; (Section 11)and Acquisition guidelines were broughtinto public domain, the sector regulatorhad consulted CCI. Now that these are in The PNGRB Act, 2006public domain, it is just appropriate that Functions of the Boardthese guidelines are well appreciative of The Board shall:the provisions of the Act relating to (a) Protect the interest of consumerscombinations. by fostering fair trade andTo understand the issue better, it would competition amongst entities;be instructive to look at the relevant (Section 11)provisions of the different regulatory A look at the above provisions ofstatutes: different regulatory provisions would indicate that the common Competition Act, 2002 thread, as far as the competition is …it shall be the duty of the concerned, in all these statutes is: Commission to…, • Promotion/facilitation of promote and sustain competition, competition protect the interest of consumers • Promotion of efficiency and ensure freedom of trade carried • Protect the interest of on by other participants, in the consumers by markets in India (Section 18) • fostering fair trade and The Electricity Act, 2003 competition in the sector. In a situation where nearly all these Functions of Central Commission: statutes talk of promoting and (1) The Central Commission fostering competition in differing shall….COMPETITION LAW REPORTS (NOV-DEC 2011) 153
  5. 5. B-302 Competition Law Reports [Vol. 2 languages, is it not natural that there acquisition. Is it not a healthy proposition would be some confusion/overlap on that even before the terms and conditions the issue of jurisdiction in the matters for assessing the competitive mergers are of competition. cleared by a sector regulator for public discussion, a consultative round with the CCI should be the norm rather than Basing the perception of exception?market dominance only on the Whichever jurisdiction you look at, there basis of market share is not a has been an approach in the competition world to reduce the scope of conflict progressive idea after all. between the different regulators. Unlike many countries, in India, there are no concurrent powers to different sectorComing to the technical aspects, except regulators and the CCI, under thementioning briefly in the objects and/or provisions of the Act, is the only regulatorintent clauses of the respective statutes, dealing with competition explained in the preceding In United Kingdom (UK), where some ofparagraphs, there is no mechanism the sector regulators enjoy concurrentprovided for evaluation of the powers, for example, OFT and eachcompetitive impact of any Merger and concurrent regulator is represented onAcquisitions in the statutes relating to the Concurrency Working Party (CWP).different sectors whereas a detailed The CWP was formed in 1997 to facilitatemechanism for such an assessment is a consistent approach by the concurrentprovided in the Act. Sub-section (4) of regulators and OFT in the exercise of theirSection 20 provides the 14 detailed functions and powers under thefactors which are going to form the basis Competition Act, 1998. It acts as a forumof evaluation whether a merger or for the members to consider the practicalacquisitions is causing appreciable working arrangements, discuss mattersadverse effect on competition. of common interest and co-ordination.Interestingly, market share of different The CWP meets about six times a year,participants in the market place and the under the chairmanship of the OFT.number of market participants (as Interestingly, the Postal Servicesindicated by the factor “level of Commission (Postcomm), while notcombination in the market”) are just two sharing concurrent powers, attends CWPof the 14 factors of determination as to meetings as an observer. When thewhether the likely merger or acquisition countries with sector regulators havingis going to cause an appreciable adverse even concurrent powers have found aeffect on competition. It may be way of co-ordination, we also surely canmentioned that these two factors have find a way out. One suggestion could bebeen liberally mentioned in the draft that the CCI, being the only regulatorM&A guidelines in the telecom sector entrusted with the mandate ofissued by TRAI. Basing the perception of competition, chair regular meetings, onmarket dominance only on the basis of the lines of CWP, where the sectormarket share is not a progressive idea regulators can throw up ideas whichafter all. In absence of such a detailed need consultation before being taken upmechanism provided by the other formally.regulatory statutes, the sector regulatorsmay not be in a position to really be able The Chairman, in his speech, also statedto effectively evaluate the impact of the that India inherits a structure where theoutcome of the proposed merger or sector regulators preceded the competition154 COMPETITION LAW REPORTS (NOV-DEC 2011)
  6. 6. 2011] Inter-Regulatory Space: A case for healthy cooperation B-303regulator for reasons of history. It is for Let us first understand the concept ofthis reason that a healthy architecture of regulatory framework. There are reasonsinter-regulatory dialogue is brought into for sector regulator to exist in sectorsexistence, he emphasised. This makes it where the market forces have not yetall the more necessary that an architecture taken roots. The competition regulatoryfor a healthy relationship should be in framework can only be effective in theplace to ensure an effective competitive cases where the markets have becomeoutcome and efficient allocation of mature. On the other hand, in the marketsresources. If not paid adequate attention which have recently been opened or evento, it can be a source of friction and a if opened earlier, the markets have notnucleus of an avoidable turf war. The yet become totally competitive and thedifferences of opinion between SEBI and fear of actual or anticipated marketIRDA have not faded from the public failures is there, the competitionmemory yet. In contrast, the Act itself regulation may not work well. What is toprovides for a consultative machinery in be done in the sectors where for reasonsthe form of provisions contained in given herein the competition regulationSections 21 and 21 A of the Act. is not yet mature enough to function? ItSection 21 of the Act deals with is in the sectors such as these that thereferences from the statutory authority sector regulation has to be there till suchto the Commission and Section 21A of time that the market forces have assertedthe Act deals with the references by the themselves and made the sectorCommission. Even without invoking regulation redundant. In India, that stagethese formal channels, the regulators can has certainly not yet reached in cases ofsimply consult each other without any the Telecom Regulation, Electricityfetters. Although not known in public Regulation and Petroleum and Naturaldomain, there have been nearly regular Gas Regulation because of the fact theconsultations as far as the CCI is sectors have been opened in the recentconcerned. In so much so that, even if past only. The good thing is that thenot specifically asked for, the CCI has understanding between the regulators,always sent its views to the concerned so far, has been very good. There haveoffices with a request that its views may been consultations to and fro betweenplease be considered before a policy is the regulators in the cases before the CCIfinalised whenever some policy issues as well as the cases which cropped uphave come in public domain. before the other regulators.Not many may know that so far the In a situation as complex as this, there isregulatory bodies have handled a need to have a clearly definedthemselves very well. There have been architecture, in an institutional form, forinstances of co-operation between CCI the co-operation and the needed two wayand SEBI, CERC, TRAI, etc. co-operating traffic between the CCI and the sectorwith each other. So far, there have been regulators. Every sector—be it telecom,cases relating to competition issues Insurance, Petroleum, etc.—has its ownbefore CCI which involved the specific peculiarities and complex technicalitiesarea of other sector regulators such as peculiar to that sector. To expect theSEBI, CERC, TRAI, etc. Not only these overarching competition regulator tocases have been adjudicated by the CCI master all that would be to expect toowell but also there has always been the much for a young authority whichrequired co-operation between the despite so many handicaps relating toregulators. Both have appreciated the staffing and capacity has given aneed and domain expertise of the other reasonably good account of itself in thewell. years gone by.COMPETITION LAW REPORTS (NOV-DEC 2011) 155
  7. 7. B-304 Competition Law Reports [Vol. 2The CCI and sector regulators have their sector regulators are importantclearly assigned roles. The sector stakeholders in the whole advocacyregulators are broadly “in-market”. Their initiatives. Having an effective architecturerole comes even before the sector has been for mutual consultation also provides ade-regulated and privatised. They usually room for advocacy with sector regulators.set the “rules of the game” and are, Coming back to the news report of thegenerally “ex ante”. As they are expected Hindu Business Line what is striking isto understand the market better, they are the line “The CCI’s suggestion is aexpected to set entry conditions, technical departure from existing norms whereindetails, tariff, safety standards, access, etc. the DoT makes policies for the telecomThey exercise direct control on price/ sector after taking recommendationsquantity/quality. These regulators may from the TRAI.” What are the existingalso promote efficient use of resources, norms? It is true that the DoT makesmeet Universal Service Obligations (USO) policy for the telecom sector after takingand protect consumers. These are recommendations from TRAI. However,commonly present in sectors having in absence of any specific mandate asnatural monopolies, sectors needing given to CCI under Section 6 of the Act, itUSOs, network industries, infrastructure would be ideal to leave it to the expertsectors utilities. The most common body or at least ensure that theexamples can be water, electricity, and competition regulator is fully consultedtelecom etc. On the contrary, the if regulatory confusion for the businesscompetition regulator pre-supposes the is to be avoided. In any case, nothingmature market forces at work. Market prevents the CCI to exercise itsfailure or the possibility of market failure jurisdiction even after a merger/is not a good ground for successful acquisition/ amalgamation has beenfunctioning of a competition regulator. In consummated. It will save a lot ofcomparison, a competition authority is potential botheration to the business ifmore in the form of a referee and it relies such a consultative approach is in place.more on the market forces and less onintervention. The usual functioning of CCI To sum up, we must agree that both thewould be “ex post” except mergers and sector regulator and the CCI mustacquisitions where it is “ex ante”. As the understand that economy needs both ofcompetition regulator, unlike other sector them in a true harmonious relationship.regulators, would not be involved in day If it is not there, it would result in dilutionto day issues of pricing, setting standards, in the quality of economic regulation inUSO issues etc., therefore, the competition addition to other conflicts. In addition toregulator is expected to be independent sensitisation on the need of consultation,and objective being a specialised forum sector regulators may keep broadon competition. competition considerations in mind while formulating policies and takingThose watching the evolution of the decisions. The institutional frameworkcompetition law in India would vouch for for consultation is the crying need of thethe fact that for any new law such as the hour not only with Telecom regulator butcompetition law, advocacy is of also all the sector regulators. May be theparamount importance. The advocacy, in Forum of Indian Regulators (FOIR) mayterms of Section 49 of the Act, has to be be one such platform to evolve such anwith different stakeholders. The different arrangement.organs of the government as well as the Copyright © Kaushal Kumar Sharma156 COMPETITION LAW REPORTS (NOV-DEC 2011)