Article on teleInter- Regulatory Space : A case for healthy cooperation

1. Inter- Regulatory Space : A case for healthy cooperation
--- Kaushal Kumar Sharma1
1. An article appeared in The Hindu Business Lineon Nov 2, 2011.
This is being reproduced below :
“Competitionpanel wants part in makingtelecomM&A rules
New Delhi, Nov. 2:
The CompetitionCommission ofIndia wants the DepartmentofTelecom toconsult itfor formulating the
new mergers and acquisitionrules for the telecomsector.
In a communication tothe DoT, the Commissionhas said thatunder the Competition Act2002it has been
mandated toexamine M&As that are likely tohave anadverse effect on competitionlevels in the market.
“Before the finalisationofthe norms on mergers and acquisitions for the telecom sector, the DoTmay
take into accountthe provisions ofthe Competition Act 2002 andthe mandate givento CCI by the Act for
regulating combinations across allthe sectors, in orderto avoid any potential jurisdiction conflict and the
resulting uncertainty for the industry”the note fromMr S L Bunker, Secretary,CCI stated.
Suitablemechanism
“In the telecomsector, itwouldbe desirable toevolve a suitable consultation mechanism involving the CCI
and the DoTso as to provide regulatory certainty tothe businesses,” itadded.
The note has been ratified byMr Ashok Chawla,Chairman, CCI,in a letter writtenseparately to the DoT
Secretary, Mr R. Chandrashekhar.“It is desirable to developa suitable consultationmechanisminvolving
the CCI and the DoT/TRAI,” Mr Chawlasaidin the letter.
The CCI's suggestion is a departure fromexistingnorms whereinthe DoTmakes policies for the telecom
sector after taking recommendations from the TRAI.
The competitionregulator said thatit had the necessary resources and the expertise toanalyse issues
from a legal, economicandfinancial perspective whichmay notbe available with sector-specific
regulatory authorities. IfCCI has to be consulted,the DoTwillhave to sendthe TRAI proposals to itbefore
a final view canbe taken.
May delay M&A rules
This could delay the final M&Arules, which atpresentis being considered bythe Telecom Commission.
The Telecom Commission has alreadymet twice on this issue and is close to finalising the new rules.
The TRAI had earlier sent its recommendations in whichit said thatmergedentitycouldownup to25per
cent ofthe spectrumina given circle and itcouldhave a combined marketshare of35per cent.TRAI's
proposal said thatmergers canalso be allowedifthe market share reaches upto 60 per cent but subject
to scrutiny. ”
2. On November 24, 2011, a conferenceon building ‘Friends of
Competition’ was organised by Consumer Unity &TrustSociety
(CUTS). The Chairman, Competition Commission of India (CCI),
while speaking on the inauguration of this event, remarked that
one of the key focus areas for the CCI is the interface with other
sector regulators. The importance of this point becomes obvious
when we look at a number of guidelines issued by differentsector
regulators, in the past on the matters, relating to Mergers and
Acquisitions.
1 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.com

2. 3. The remarks of the Chairman , CCI were reported the next day in
media as under :
“CCI eyestelecom M&Arules :
The Competition Commission ofIndia (CCI) wants a handon merger and acquisition(M&A) norms for the
telecomsector.The CCIhas identified interfacewith sectoral regulators as a key priority. Speaking ata
conference organised heretodayby CUTS International, a consumer rights body,CCI ChairmanAshok
Chawla saidhe hoped tosee a formalarchitecture enabling aninterface betweenhis competition
watchdog andall economies regulators.”
-------- Business Standard datedNov 25, 2011
4. A look at the sentiments in this media coveragewould give an
impression that the CCI is looking for something that is not a part
of its original mandate and the whole atmosphereso created, as
seen fromthe perspectiveof a layman/general reader, gives the
impression of a turf war between the regulators in which CCI is
eyeing part of the domain of other sector regulators- in this case
telecom regulator. Perhaps anything less than that does not
arousemedia curiosity. However the fact is that nothing can be
farther from truth in this impression if this indeed wereto be the
general impression. The question arises as to whether such
reporting in the media reflects the ground reality or it is merely
the perception of the media conditioned, perhaps , by similar
situations having arisen in the past in the interrelationship
amongstother regulators of the country in not so long past.
5. The mandate given in the Competition Act, 2002 (theAct) to CCI is
sector neutral. Thus the provisions of the Act apply to all the
sectors alike and the sameapplies to the mandate of promoting
and sustaining competition given to CCI under the Act. The only
exceptions provided under section 2(h) of the Act are in the
nature of any activity of the Government relatable to the
sovereign functions of the Governmentincluding all activities
carried on by the departments of the Central Government dealing
with atomic energy, currency, defence and space. The interesting
part in this exception is that firstof all only sovereign functions of
the Governmentare outside the application of the purview of the
provisions of the Act. However, when it comes to the four
departments of the Governmentmentioned herein all the
activities relating to these departments are outside the purview of

3. the provisions of the Act including the sovereign activities of the
Government. Having said that, we should also appreciate that the
sectors being dealt with by the sector regulators are very well
understood by the respectiveregulators in all technical aspects
and, therefore, the sector regulator is positioned better to
understand the finer nuisances of any issuerelating to that sector
except that of competition for which the expertise lies with the
CCI. Competition, under the provisions of the Act, generally,
connotes four functions. These are prohibition of anti-competitive
agreements, abuse of dominant position, regulations of
combinations (popularly known as Mergers and Acquisitions) and
competition advocacy. Itis not always very easy to segregate the
technical partfrom the competition element. Irrespectiveof how
much one tries, it is nearly impossible to really reach a well
reasoned finding on an issuerelating to any sector without
involving either the experts from that sector, experts in that sector
regulator or the sector regulator itself. As a matter of fact, to fully
appreciate even the competition issueit may become really
necessary to understand the finer aspects of the technical
components of the issue. For doing so a frequentreference to the
sector experts or the experts in the relevant sector regulator may
be necessary.
6. In reality ,in the cases dealt with by the CCI so far, in a number of
matters beforeit, the cooperation of these types had to be
engaged into – be it the cases relating to DTH ServiceProviders,
Stock Exchanges or electricity sector. Thus it is not only incidental
for the CCI to carry out its duties effectively but is necessary for it
to engage in continuous mutually beneficial interaction with the
sector regulators, experts in the sector regulators as well as the
sector experts available otherwise. The same would also servethe
sector regulators equally well. The modalities of these various
engagements would have to be worked out by thoseentrusted
with the task of carrying out the mandate given under the Act or
the respectivestatutes.

4. 7. A reflection on the pastwould indicate that at various stages the
CCI has been morethan conscious of the need of consultation
with other sector regulators across differentsectors. Therehave
been instances wherethe CCI ,even before taking the matter for
further investigation, considered it fit to refer the matter to the
sector regulator ( CaseNo 6 / 2009 ). On the other hand, there
have been instances where the sector regulators haveconsidered
it prudentto seek the opinion of the CCI before reaching any final
decision on any issue. This is indeed a healthy trend and augers
well for the cooperation amongstthe differentregulators.
8. What the Chairman, CCI, merely said in his remarks was that he
desired a very healthy architecture of the interface with other
regulators – a noble thought and desire indeed. His precise
wordings in the news are sentiments in the right direction and
these were for a formal architecture enabling an interface
between the competition watchdog and all other sector
regulators. As a matter of fact what the Chairman said merely
reflected the aim of entire competition law landscape across the
whole regulatory spectrum across theglobe.
9. Whichever way we see it- either from the perspectiveof the letter
written fromthe CCI as reported in the media reporting of Nov 2,
2011 or the day following the CUTS event- if there is anything on
the wish list of CCI, it is an architecture of a suitable consultative
machinery in tune with the intent of the legislation which is well
understood by all the regulators. This only can ensurethat the
outcome of the regulatory interface is healthy. There is an urgent
need for continuous consultation between the two. Ideally
speaking, there should have been no need for the CCI to have
written a letter to the DoT on the issue if the contours of
cooperation werewell laid out which would have ensured that
even before such Merger and Acquisition guidelines were brought
into public domain, the sector regulator had consulted CCI. Now
that these are in public domain, it is justappropriatethat these

5. guidelines are well appreciative of the provisions of the Act
relating to combinations.
10. To understand the issue better, it would be instructive to look at
the relevant provisions of the different regulatory statutes:
CompetitionAct, 2002 :
……it shall be the duty ofthe Commissionto…..,
promote andsustaincompetition,protect the
interest ofconsumers and ensure freedomoftrade
carried on byother participants, inthe markets in
India(S 18)
The Electricity Act, 2003:
“ Functions ofCentralCommission-
(1) The Central Commissionshall….
(2)The Central Commission shalladvise
the Central Governmentonallor any
ofthe following matters, namely:-
(i)..
(ii) Promotionofcompetition, efficiency
and….. (S 79)
[S 86(2) says the same for state
Commissions]”
The TRAI Act, 1997 :
“Functions ofAuthority:
(1) ….,the functions ofthe Authority shall be to-
(2)Make recommendations, either suomotuor
on a request from the licensor, onthe
followingmatters, namely:-
(iv) measures to facilitate competitionand
promote efficiencyin the operation of
telecommunicationservices so as to
facilitate growthinsuchservices;
(S 11)”
The PNGRB Act, 2006 :
“ Functions ofthe Board- The
Board shall-
(a) Protect the interest ofconsumers by
fostering fair trade andcompetition
amongst entities;(S 11) ”
11. A look at the above provisions of different regulatory provisions would
indicate that the common thread ,as far as the competition is
concerned, in all these statutes is :
-Promotion/facilitation ofcompetition
-Promotion ofefficiency
-Protect the interest ofconsumers by
-fostering fair trade and competition
in the sector.
In a situation where nearly all these statutes talk of promoting and
fostering competition in differing languages, is it not natural that there
would be some confusion / overlap on the issue of jurisdiction in the
matters of competition.

6. 12. Coming to the technical aspects, except mentioning briefly in the
objects and/or intent clauses of the respectivestatutes, as
explained in the preceding paragraphs, thereis no mechanism
provided for evaluation of the competitive impact of any merger
and acquisitions in the statutes relating to different sectors
whereas a detailed mechanism for such an assessmentis provided
in the Act. Sub section (4) of section 20 provides the 14 detailed
factors which are going to form the basis of evaluation whether a
merger or acquisitions is causing appreciable adverseeffect on
competition. Interestingly, marketshareof different participants
in the market place and the number of marketparticipants (as
indicated by the factor ‘level of combination in the market’) are
justtwo of the 14 factors of determination as to whether the likely
merger or acquisition is going to causean appreciable adverse
effect on competition. Itmay be mentioned that these two factors
have been liberally mentioned in the draftM& A guidelines in the
telecom sector issued by TRAI. Basing the perception of market
dominance only on the basis of marketshareis not a progressive
idea after all. In absenceof such a detailed mechanism provided
by the other regulatory statutes, the sector regulators may not be
in a position to really be able to effectively evaluate the impact of
the outcome of the proposed merger or acquisition. Is it not a
healthy proposition that even before the terms and conditions for
assessing thecompetitive mergers are cleared by a sector
regulator for public discussion, a consultativeround with the CCI
should be the normrather than exception?
13. Whichever jurisdiction you look at, there has been an approach in
the competition world to reduce the scopeof conflict between the
different regulators. Unlike many countries, in India, there are no
concurrentpowers to differentsector regulators and the CCI,
under the provisions of the Act, is the only regulator dealing with
competition matters. In United Kingdom (UK), wheresome of the
sector regulators enjoy concurrentpowers, for example, OFTand
each concurrentregulator is represented on the Concurrency
Working Party (CWP). The CWP was formed in 1997 to facilitate a
consistentapproach by the concurrentregulators and OFTin the
exercise of their functions and powers under the Competition Act
1998. Itacts as a forum for the members to consider the practical
working arrangements, discuss matters of common interest and
coordination. The CWP meets about six times a year, under the

7. chairmanship of the OFT. Interestingly, thePostal Services
Commission (Postcomm), whilenot sharing concurrentpowers,
attends CWP meetings as an observer. When the countries with
sector regulators having even concurrentpowers have found a
way of coordination, we also surely can find a way out. One
suggestion could be that the CCI ,being the only regulator
entrusted with the mandate of competition ,chair regular
meetings, on the lines of CWP, where the sector regulators can
throw up ideas which need consultation before being taken up
formally.
14. The Chairman, in his speech, also stated that India inherits a
structurewherethe sector regulators preceded the competition
regulator for reasons of history. Itis for this reason that a healthy
architecture of inter regulatory dialogue is broughtinto existence,
he emphasised. This makes it all the more necessary thatan
architecture for a healthy relationship should be in place to ensure
an effective competitive outcome and efficient allocation of
resources. If not paid adequate attention to, it can be a sourceof
friction and a nucleus of an avoidable turf war. The differences of
opinion between SEBI and IRDA havenot faded from the public
memory yet. In contrast, the Act itself provides for a consultative
machinery in the form of provisions contained in sections 21 and
21 A of the Act. Section 21 of the Act deals with references from
the statutory authority to the Commission and section 21A of the
Act deals with the references by the Commission. Even without
invoking these formal channels, the regulators can simply consult
each other without any fetters. Although not known in public
domain, there have been nearly regular consultations as far as the
CCI is concerned. In so much so that, even if not specifically asked
for, the CCI has always sentits views to the concerned offices with
a request that its views may please be considered before a policy
is finalised whenever somepolicy issues havecome in public
domain.
15. Not many may know that so far the regulatory bodies have
handled themselves very well. There havebeen instances of
cooperation between CCI and SEBI, CERC, TRAI etc. cooperating

8. with each other. So far, there have been cases relating to
competition issues beforeCCI which involved the specific area of
other sector regulators such as SEBI, CERC, TRAI etc..Not only
these cases have been adjudicated by the CCI well but there has
always been the required cooperation between the regulators.
Both have appreciated the need and domain expertise of the
other well.
16. Let us firstunderstand the concept of regulatory framework.
There are reasons for sector regulator to exist in sectors where
the marketforces have not yet taken roots. The competition
regulatory framework can only be effective in the cases wherethe
markets have become mature. On the other hand, in the markets
which have recently been opened or even if opened earlier, the
markets have not yet become totally competitive and the fear of
actual or anticipated marketfailures is there, the competition
regulation may not work well. What is to be done in the sectors
wherefor reasons given herein the competition regulation is not
yet mature enough to function? It is in the sectors such as these
that the sector regulation has to be there till such time that the
market forces haveasserted themselves and made the sector
regulation redundant. In India, that stage has certainly not yet
reached in cases of the Telecom Regulation, Electricity regulation
and Petroleum and Natural Gas Regulation becauseof the fact the
sectors havebeen opened in the recent past only. The good thing
is that the understanding between the regulators, so far, has been
very good. There have been consultations to and fro between the
regulators in the cases beforethe CCI as well as the cases which
cropped up before the other regulators.
17. In a situation as complex as this, there is a need to have a clearly
defined architecture, in an institutional form, for the cooperation
and the needed two way traffic between the CCI and the sector
regulators. Every sector – be it telecom, Insurance, Petroleumetc
– has its own peculiarities and complex technicalities peculiar to
that sector. To expect the overarching competition regulator to
master all that would be to expect too much for a young authority

9. which despite so many handicaps relating to staffing and capacity
has given a reasonably good account of itself in the years gone by.
18. The CCI and sector regulators have their clearly assigned roles.
The sector regulators are broadly ‘In-market’. Thererole comes
even before the sector has been deregulated and privatised. They
usually set the ‘rules of the game’ and are, generally ‘ex-ante’. As
they are expected to understand the market better, they are
expected to set entry conditions, technical details, tariff, safety
standards, access, etc. They exercise direct control on
price/quantity/quality. These regulators may also promote
efficient useof resources, meet UniversalServiceObligations
(USO) and protect consumers. Theseare commonly present in
sectors having natural monopolies, sectors needing USOs, network
industries, infrastructure sectors utilities. The mostcommon
examples can be Water, Electricity, and Telecom etc. On the
contrary, the competition regulator pre supposes themature
market forces at work. Marketfailure or the possibility of market
failure is not a good ground for successfulfunctioning of a
competition regulator. In comparison, a competition authority is
more in the formof a referee and it relies moreon the market
forces and less on intervention. The usual functioning of CCI would
be ‘ex-post’ except mergers and acquisitions whereit is ‘ex- ante’.
As the competition regulator, unlike other sector regulators,
would not be involved in day to day issues of pricing, setting
standards, USO issues etc., therefore, the competition regulator is
expected to be independent and objective being a specialised
forum on competition.
19. Those watching the evolution of the competition law in India
would vouch for the fact that for any new law such as the
competition law, advocacy is of paramountimportance. The
advocacy, in terms of section 49 of the Act, has to be with
different stakeholders. Thedifferent organs of the governmentas
well as the sector regulators are importantstakeholders in the
whole advocacy initiatives. Having an effective architecture for
mutual consultation also provides a room for advocacy with sector
regulators.
20. Coming back to the news report of the Hindu Business Line what is
striking is the line “The CCI's suggestion is a departure from existing norms wherein
the DoT makes policies for the telecom sector after taking recommendations from the TRAI.”
What are the existing norms? Itis true that the DoT makes policy
for the telecom sector after taking recommendations from TRAI.

10. However, in absenceof any specific mandate as given to CCI under
Section 6 of the Act, it would be ideal to leave it to the expert
body or at least ensure that the competition regulator is fully
consulted if regulatory confusion for the business is to be avoided.
In any case, nothing prevents the CCI to exercise its jurisdiction
even after a merger/ acquisition/ amalgamation has been
consummated. Itwill save a lot of potential botheration to the
business if such a consultativeapproach is in place.
21. To sum up, we mustagree that both the sector regulator and the
CCI mustunderstand that economy needs 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 all the sector regulators.
May be the Forum of Indian Regulators (FOIR) may beone such
platformto evolve such an arrangement.