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CCompetition ompetition CCommission of ommission of IIndiandia

Interface Between Competition Interface Between Competition Commission of India(CCI) and Commission of India(CCI) and

Sector RegulatorsSector Regulators

ByByK K Sharma IRSK K Sharma IRS

Advisor(Law) and former Director General Advisor(Law) and former Director General

1111thth AGM of Forum Of Indian Regulators AGM of Forum Of Indian Regulators

Delhi, 17-06-2010Delhi, 17-06-2010

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Structure of the PresentationStructure of the Presentation Regulatory frameworkRegulatory framework Why sector regulationWhy sector regulation Why competition regulation Why competition regulation Need for synergyNeed for synergy Grey AreasGrey Areas Advantages of coordination or Advantages of coordination or

otherwiseotherwise Possible modalitiesPossible modalities In briefIn brief

Why RegulationWhy Regulation Economic regulations influence the Economic regulations influence the

private sector to improve efficiency in private sector to improve efficiency in society’s resource allocation towards society’s resource allocation towards optimizationoptimization

Good regulation-independent of Good regulation-independent of Government and industry- crucial for an Government and industry- crucial for an efficient market economyefficient market economy

Opening of utility networked sectors-Opening of utility networked sectors-sector regulators-to control anticipated sector regulators-to control anticipated market failuresmarket failures

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Economic RegulationsEconomic Regulations Public constraints on market Public constraints on market

behaviour or structure behaviour or structure e.g. laws, subordinate legislation, formal e.g. laws, subordinate legislation, formal and informal orders, regulations issued and informal orders, regulations issued by institutions created by the by institutions created by the government government

Regulatory frameworkRegulatory frameworkSector regulators and Sector regulators and competition regulator competition regulator

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Why Sector Regulators-IWhy Sector Regulators-I

Technical requirement: Expertise Technical requirement: Expertise necessary to determine access, necessary to determine access, maintain standards, ensure safety, maintain standards, ensure safety, determine tariffs, ensure Universal determine tariffs, ensure Universal Service Obligation (USO)Service Obligation (USO)

Structural requirements: Natural Structural requirements: Natural monopolies - economies of monopolies - economies of scale/scope , network industriesscale/scope , network industries

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Why Sector Regulators-IIWhy Sector Regulators-II ‘‘In-market’/Usually ex-anteIn-market’/Usually ex-ante Sets ‘rules of the game’ Sets ‘rules of the game’ Entry conditions, technical details, Entry conditions, technical details,

tariff, safety standards, access, etctariff, safety standards, access, etc Direct control on price/quantity/ Direct control on price/quantity/

qualityquality To promote efficient use of To promote efficient use of

resources, meet USO and protect resources, meet USO and protect consumersconsumers

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Commonly Present In Commonly Present In

Sectors having natural monopoliesSectors having natural monopolies Sectors needing USOs Sectors needing USOs Network industriesNetwork industries Infrastructure sectors Infrastructure sectors UtilitiesUtilities

Examples:Examples:

Water, Electricity, Telecom etc.Water, Electricity, Telecom etc.

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Why Competition RegulationWhy Competition Regulation Society should maximize welfareSociety should maximize welfare

Allocative efficiencyAllocative efficiency Productive efficiencyProductive efficiency Dynamic efficiencyDynamic efficiency

Promotes efficiency and innovation Promotes efficiency and innovation Ensures abundant availability of quality Ensures abundant availability of quality

goods and services at affordable / lower goods and services at affordable / lower pricesprices

Offers wider choice to consumersOffers wider choice to consumers Enhances overall social welfare within Enhances overall social welfare within

limited resourceslimited resources

Regulation by CCIRegulation by CCI

Anti-competitive agreementsAnti-competitive agreements

Abuse of dominant positionAbuse of dominant position

CombinationsCombinations

Also competition advocacyAlso competition advocacy

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Constraints in competition Constraints in competition regulationregulation

Natural MonopoliesNatural Monopolies StandardsStandards AccessAccess Civil Society Civil Society Market Failures- Market Failures- are free markets free enough to escape failures ?are free markets free enough to escape failures ?

Technological advancementsTechnological advancements Natural ProgressionNatural Progression Free run to competition?Free run to competition?

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Features of Competition Features of Competition Authority Authority

‘‘Off-market’ regulator ;Usually Off-market’ regulator ;Usually ex-postex-post Referee ; Relies on market forcesReferee ; Relies on market forces Independent and objective – detached Independent and objective – detached Specialized forum for deciding competition Specialized forum for deciding competition

issuesissues Applies competition principles uniformly Applies competition principles uniformly

across all sectorsacross all sectors Uniform competition outcomes across Uniform competition outcomes across

sectorssectors Maximum impact with minimal interventionMaximum impact with minimal intervention

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Synergy -ISynergy -I

Sector regulation: Emphasis on price Sector regulation: Emphasis on price regulation, performance/quality regulation, performance/quality standards, aim at more efficient use standards, aim at more efficient use of resources and protecting of resources and protecting consumersconsumers

Synergy -IISynergy -II

Competition law: Emphasis on economy Competition law: Emphasis on economy wide intervention, based on macro-wide intervention, based on macro-economic considerations, aims at economic considerations, aims at ensuring that competition is not ensuring that competition is not restricted and markets function, and thus restricted and markets function, and thus ensuring efficiency and enhancing ensuring efficiency and enhancing consumer welfare consumer welfare

Sector and competition regulators are Sector and competition regulators are complementarycomplementary

Maximize societal welfare-in synergyMaximize societal welfare-in synergy1313

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Grey Areas Grey Areas

Potential for disagreements/conflict Potential for disagreements/conflict on account of on account of

Legislative ambiguity/overlap/ omissionLegislative ambiguity/overlap/ omission Interpretational bias Interpretational bias Conflicting approachesConflicting approaches Likely in the absence of clear delineation of Likely in the absence of clear delineation of

jurisdiction and effective coordinationjurisdiction and effective coordination May be spurred by market players/lawyersMay be spurred by market players/lawyers

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Potential consequences of Potential consequences of inadequate coordinationinadequate coordination

Dilution in quality of economic Dilution in quality of economic regulationregulation

Delay in delivery – “forum shopping”Delay in delivery – “forum shopping” Adverse effects on investments, Adverse effects on investments,

mergers & acquisitions mergers & acquisitions Lessening of effective competition Lessening of effective competition

resulting in decrease in productivity, resulting in decrease in productivity, efficiency, economic growth and efficiency, economic growth and consumer welfareconsumer welfare

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Advantages of coordination-IAdvantages of coordination-I Expertise available with either is unique Expertise available with either is unique

and cannot be acquired easily by the and cannot be acquired easily by the other – healthy respect for each otherother – healthy respect for each other

Competition law enforcement can Competition law enforcement can overcome inadequacy in market overcome inadequacy in market regulation e.g. predatory pricingregulation e.g. predatory pricing

Sector regulator can respond to specific Sector regulator can respond to specific requirements of the sector e.g. price requirements of the sector e.g. price fixing in public interest, setting fixing in public interest, setting standards etc.standards etc.

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Advantages of coordination-IIAdvantages of coordination-II

With effective coordination, each can With effective coordination, each can play a distinct and non-conflicting role play a distinct and non-conflicting role vis-à-vis the other, resulting in better vis-à-vis the other, resulting in better overall economic regulationoverall economic regulation

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General Interface General Interface Mechanisms-IMechanisms-I

Informal Informal An attitude of cooperation and An attitude of cooperation and

consultationconsultationcontacts, meetings and exchange of contacts, meetings and exchange of

information, including at working levelsinformation, including at working levelsexchange of officialsexchange of officialssetting up of joint working groupssetting up of joint working groups

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General Interface General Interface Mechanisms-IIMechanisms-II

Formal Formal right to participate in proceedings right to participate in proceedings

before the otherbefore the otherformal referrals - optional or mandatory formal referrals - optional or mandatory appeal to a common authorityappeal to a common authorityno interference in the other’s territory no interference in the other’s territory delineation of jurisdiction –by statutedelineation of jurisdiction –by statute

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…………it shall be the duty of the Commission to….., it shall be the duty of the Commission to….., promote and sustain competition, protect the promote and sustain competition, protect the interest of consumers and ensure freedom of trade interest of consumers and ensure freedom of trade carried on by other participants, in the markets in carried on by other participants, in the markets in India(S 18)India(S 18)

Formal referrals – S 21 & 21AFormal referrals – S 21 & 21A Any statutory authorityAny statutory authority

may make a reference to CCImay make a reference to CCI CCI to give opinion in 60 daysCCI to give opinion in 60 days

Opinion of CCI is not binding Opinion of CCI is not binding CCI may also refer to statutory authoritiesCCI may also refer to statutory authorities Reference is not mandatoryReference is not mandatory Referrals by Central / State Govt. – S 49Referrals by Central / State Govt. – S 49

Competition Act, 2002Competition Act, 2002

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The Electricity Act, 2003The Electricity Act, 2003

S 79 Functions of Central Commission-S 79 Functions of Central Commission-(1) The Central Commission shall….(1) The Central Commission shall….(2)The Central Commission shall advise (2)The Central Commission shall advise the Central Government on all or any the Central Government on all or any of of the following matters, namely:-the following matters, namely:-

(i)..(i)..(ii) Promotion of competition, (ii) Promotion of competition,

efficiency efficiency and..and..[S 86(2) says the same for state [S 86(2) says the same for state

Commissions]Commissions]

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The TRAI Act,1997The TRAI Act,1997 S 11 Functions of Authority:S 11 Functions of Authority:

(1)(1) …….,the functions of the Authority shall be to-.,the functions of the Authority shall be to-

(2)(2) Make recommendations, either suo motu or Make recommendations, either suo motu or on a request from the licensor, on the on a request from the licensor, on the following matters, namely:-following matters, namely:-

(iv) (iv) measures to facilitate competition measures to facilitate competition and and promote efficiency in the operation promote efficiency in the operation of of telecommunication services so as to telecommunication services so as to

facilitate growth in such services;facilitate growth in such services;

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The PNGRB Act,2006The PNGRB Act,2006

S 11 Functions of the Board- The S 11 Functions of the Board- The Board shall-Board shall-(a) Protect the interest of consumers (a) Protect the interest of consumers by by fostering fair trade and fostering fair trade and competition competition

amongst entities; amongst entities;

Common ThreadCommon Thread

Promotion/facilitation of competitionPromotion/facilitation of competition

Promotion of efficiencyPromotion of efficiency

Protect the interest of consumers Protect the interest of consumers by by fostering fair trade and fostering fair trade and competitioncompetition

In the sectorIn the sector

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Possible Modalities-IPossible Modalities-I

Sector regulators may keep Sector regulators may keep competition considerations in mind competition considerations in mind while formulating policies and taking while formulating policies and taking decisionsdecisions

Specific competition issues in a case Specific competition issues in a case may be referred to CCImay be referred to CCI

CCI may consult sector regulators on CCI may consult sector regulators on issues impinging on competition in a issues impinging on competition in a case (already being done)case (already being done)

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Possible Modalities-IIPossible Modalities-II

May consider evolving any May consider evolving any further appropriate modalities further appropriate modalities required for handling cases required for handling cases involving both sectoral and involving both sectoral and competition issues competition issues

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In BriefIn Brief

Economy needs bothEconomy needs both Law recognizes thisLaw recognizes this Common /harmonious understanding Common /harmonious understanding

of respective rolesof respective roles In case of doubt- consultIn case of doubt- consult Effective coordinationEffective coordination

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THANKSTHANKSwww.cci.gov.inwww.cci.gov.in