1. B-298 Competition Law Reports [Vol. 2
Inter-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 for
Line on 2nd November, 2011. This is being regulating combinations across all the
reproduced 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.com
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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 such
On 24th November, 2011, a conference on reporting in the media reflects the
building ‘Friends of Competition’ was ground reality or it is merely the
organised by Consumer Unity &Trust perception of the media conditioned,
Society (CUTS). The Chairman, perhaps , by similar situations having
Competition Commission of India (CCI), arisen in the past in the interrelationship
while speaking on the inauguration of amongst other regulators of the country
this 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 Competition
with other sector regulators. The Act, 2002 (the Act) to CCI is sector
importance of this point becomes obvious neutral. Thus, the provisions of the Act
when we look at a number of guidelines apply to all the sectors alike and the same
issued by different sector regulators, in applies to the mandate of promoting and
the past on the matters, relating to sustaining competition given to CCI
Mergers and Acquisitions. The remarks under the Act. The only exceptions
of the Chairman, CCI were reported the provided under Section 2(h) of the Act
next 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 Government
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3. B-300 Competition Law Reports [Vol. 2
dealing with atomic energy, currency, appreciate even the competition issue, it
defence and space. The interesting part may become really necessary to
in this exception is that first of all only understand the finer aspects of the
sovereign functions of the Government technical components of the issue. For
are outside the application of the doing so, a frequent reference to the sector
purview 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 sector
However, when it comes to the four regulators, experts in the sector
departments of the Government regulators as well as the sector experts
mentioned herein, all the activities available otherwise. The same would
relating to these departments are outside also serve the sector regulators equally
the purview of the provisions of the Act well. The modalities of these various
including the sovereign activities of the engagements would have to be worked
Government. Having said that, we out by those entrusted with the task of
should also appreciate that the sectors carrying out the mandate given under
being 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 that
respective regulators in all technical at various stages the CCI has been more
aspects and, therefore, the sector than conscious of the need of consultation
regulator is positioned better to with other sector regulators across different
understand the finer nuisances of any sectors. There have been instances where
issue relating to that sector except that of the CCI, even before taking the matter for
competition for which the expertise lies further investigation, considered it fit to
with the CCI. Competition, under the refer the matter to the sector regulator (Case
provisions of the Act, generally, connotes No. 6/2009 ). On the other hand, there have
four functions. These are prohibition of been instances where the sector regulators
anti-competitive agreements, abuse of have considered it prudent to seek the
dominant position, regulations of opinion of the CCI before reaching any final
combinations (popularly known as decision on any issue. This is indeed a
Mergers and Acquisitions) and healthy trend and augers well for the
competition advocacy. It is not always co-operation amongst the different
very easy to segregate the technical part regulators.
from the competition element.
What the Chairman, CCI, merely said in
Irrespective of how much one tries, it is
his remarks was that he desired a very
nearly impossible to really reach a well-
healthy architecture of the interface with
reasoned finding on an issue relating to
other regulators – a noble thought and
any sector without involving either the
desire indeed. His precise wordings in
experts from that sector, experts in that
the news are sentiments in the right
sector regulator or the sector regulator
direction and these were for a formal
itself. As a matter of fact, to fully
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4. 2011] Inter-Regulatory Space: A case for healthy cooperation B-301
architecture enabling an interface (2)The Central Commission shall
between the competition watchdog and advise the Central Government on
all 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 xxx
law landscape across the whole (ii) Promotion of competition,
regulatory spectrum across the globe. efficiency
Whichever way we see it— either from and… (Section 79)
the perspective of the letter written from (Section 86(2) says the same for
the CCI as reported in the media reporting state Commissions)
of 2nd November, 2011 or the day following
the CUTS event—if there is anything on The TRAI Act, 1997
the wish list of CCI, it is an architecture of Functions of Authority:
a suitable consultative machinery in tune (1) …, the functions of the Authority
with the intent of the legislation which is shall be to-
well understood by all the regulators. This
(2)Make recommendations, either
only can ensure that the outcome of the
suo motu or on a request from the
regulatory interface is healthy. There is
licensor, on the following matters,
an urgent need for continuous
namely:
consultation between the two. Ideally
(iv) measures to facilitate
speaking, there should have been no need
competition and promote
for the CCI to have written a letter to the
efficiency in the operation of
DoT on the issue if the contours of co-
telecommunication services so
operation were well laid out which would
as to facilitate growth in such
have ensured that even before such Merger
services; (Section 11)
and Acquisition guidelines were brought
into public domain, the sector regulator
had consulted CCI. Now that these are in The PNGRB Act, 2006
public domain, it is just appropriate that Functions of the Board
these guidelines are well appreciative of The Board shall:
the provisions of the Act relating to (a) Protect the interest of consumers
combinations. by fostering fair trade and
To 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 of
statutes: 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….
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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 sector
Coming to the technical aspects, except regulators and the CCI, under the
mentioning briefly in the objects and/or provisions of the Act, is the only regulator
intent clauses of the respective statutes, dealing with competition matters.
as explained in the preceding In United Kingdom (UK), where some of
paragraphs, there is no mechanism the sector regulators enjoy concurrent
provided for evaluation of the powers, for example, OFT and each
competitive impact of any Merger and concurrent regulator is represented on
Acquisitions in the statutes relating to the Concurrency Working Party (CWP).
different sectors whereas a detailed The CWP was formed in 1997 to facilitate
mechanism for such an assessment is a consistent approach by the concurrent
provided in the Act. Sub-section (4) of regulators and OFT in the exercise of their
Section 20 provides the 14 detailed functions and powers under the
factors which are going to form the basis Competition Act, 1998. It acts as a forum
of evaluation whether a merger or for the members to consider the practical
acquisitions is causing appreciable working arrangements, discuss matters
adverse 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 Services
indicated by the factor “level of Commission (Postcomm), while not
combination in the market”) are just two sharing concurrent powers, attends CWP
of the 14 factors of determination as to meetings as an observer. When the
whether the likely merger or acquisition countries with sector regulators having
is going to cause an appreciable adverse even concurrent powers have found a
effect on competition. It may be way of co-ordination, we also surely can
mentioned that these two factors have find a way out. One suggestion could be
been liberally mentioned in the draft that the CCI, being the only regulator
M&A guidelines in the telecom sector entrusted with the mandate of
issued by TRAI. Basing the perception of competition, chair regular meetings, on
market dominance only on the basis of the lines of CWP, where the sector
market share is not a progressive idea regulators can throw up ideas which
after all. In absence of such a detailed need consultation before being taken up
mechanism provided by the other formally.
regulatory statutes, the sector regulators
may not be in a position to really be able The Chairman, in his speech, also stated
to effectively evaluate the impact of the that India inherits a structure where the
outcome of the proposed merger or sector regulators preceded the competition
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6. 2011] Inter-Regulatory Space: A case for healthy cooperation B-303
regulator for reasons of history. It is for Let us first understand the concept of
this reason that a healthy architecture of regulatory framework. There are reasons
inter-regulatory dialogue is brought into for sector regulator to exist in sectors
existence, he emphasised. This makes it where the market forces have not yet
all the more necessary that an architecture taken roots. The competition regulatory
for a healthy relationship should be in framework can only be effective in the
place to ensure an effective competitive cases where the markets have become
outcome and efficient allocation of mature. On the other hand, in the markets
resources. If not paid adequate attention which have recently been opened or even
to, it can be a source of friction and a if opened earlier, the markets have not
nucleus of an avoidable turf war. The yet become totally competitive and the
differences of opinion between SEBI and fear of actual or anticipated market
IRDA have not faded from the public failures is there, the competition
memory yet. In contrast, the Act itself regulation may not work well. What is to
provides for a consultative machinery in be done in the sectors where for reasons
the form of provisions contained in given herein the competition regulation
Sections 21 and 21 A of the Act. is not yet mature enough to function? It
Section 21 of the Act deals with is in the sectors such as these that the
references from the statutory authority sector regulation has to be there till such
to the Commission and Section 21A of time that the market forces have asserted
the Act deals with the references by the themselves and made the sector
Commission. Even without invoking regulation redundant. In India, that stage
these formal channels, the regulators can has certainly not yet reached in cases of
simply consult each other without any the Telecom Regulation, Electricity
fetters. Although not known in public Regulation and Petroleum and Natural
domain, there have been nearly regular Gas Regulation because of the fact the
consultations as far as the CCI is sectors have been opened in the recent
concerned. In so much so that, even if past only. The good thing is that the
not specifically asked for, the CCI has understanding between the regulators,
always sent its views to the concerned so far, has been very good. There have
offices with a request that its views may been consultations to and fro between
please be considered before a policy is the regulators in the cases before the CCI
finalised whenever some policy issues as well as the cases which cropped up
have come in public domain. before the other regulators.
Not many may know that so far the In a situation as complex as this, there is
regulatory bodies have handled a need to have a clearly defined
themselves very well. There have been architecture, in an institutional form, for
instances of co-operation between CCI the co-operation and the needed two way
and SEBI, CERC, TRAI, etc. co-operating traffic between the CCI and the sector
with each other. So far, there have been regulators. Every sector—be it telecom,
cases relating to competition issues Insurance, Petroleum, etc.—has its own
before CCI which involved the specific peculiarities and complex technicalities
area of other sector regulators such as peculiar to that sector. To expect the
SEBI, CERC, TRAI, etc. Not only these overarching competition regulator to
cases have been adjudicated by the CCI master all that would be to expect too
well but also there has always been the much for a young authority which
required co-operation between the despite so many handicaps relating to
regulators. Both have appreciated the staffing and capacity has given a
need and domain expertise of the other reasonably good account of itself in the
well. years gone by.
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7. B-304 Competition Law Reports [Vol. 2
The CCI and sector regulators have their sector regulators are important
clearly assigned roles. The sector stakeholders in the whole advocacy
regulators are broadly “in-market”. Their initiatives. Having an effective architecture
role comes even before the sector has been for mutual consultation also provides a
de-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 the
generally “ex ante”. As they are expected Hindu Business Line what is striking is
to understand the market better, they are the line “The CCI’s suggestion is a
expected to set entry conditions, technical departure from existing norms wherein
details, tariff, safety standards, access, etc. the DoT makes policies for the telecom
They exercise direct control on price/ sector after taking recommendations
quantity/quality. These regulators may from the TRAI.” What are the existing
also promote efficient use of resources, norms? It is true that the DoT makes
meet Universal Service Obligations (USO) policy for the telecom sector after taking
and protect consumers. These are recommendations from TRAI. However,
commonly present in sectors having in absence of any specific mandate as
natural monopolies, sectors needing given to CCI under Section 6 of the Act, it
USOs, network industries, infrastructure would be ideal to leave it to the expert
sectors utilities. The most common body or at least ensure that the
examples can be water, electricity, and competition regulator is fully consulted
telecom etc. On the contrary, the if regulatory confusion for the business
competition regulator pre-supposes the is to be avoided. In any case, nothing
mature market forces at work. Market prevents the CCI to exercise its
failure or the possibility of market failure jurisdiction even after a merger/
is not a good ground for successful acquisition/ amalgamation has been
functioning of a competition regulator. In consummated. It will save a lot of
comparison, a competition authority is potential botheration to the business if
more in the form of a referee and it relies such a consultative approach is in place.
more on the market forces and less on
intervention. The usual functioning of CCI To sum up, we must agree that both the
would be “ex post” except mergers and sector regulator and the CCI must
acquisitions where it is “ex ante”. As the understand that economy needs both of
competition 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 dilution
to day issues of pricing, setting standards, in the quality of economic regulation in
USO issues etc., therefore, the competition addition to other conflicts. In addition to
regulator is expected to be independent sensitisation on the need of consultation,
and objective being a specialised forum sector regulators may keep broad
on competition. competition considerations in mind
while formulating policies and taking
Those watching the evolution of the decisions. The institutional framework
competition law in India would vouch for for consultation is the crying need of the
the fact that for any new law such as the hour not only with Telecom regulator but
competition law, advocacy is of also all the sector regulators. May be the
paramount importance. The advocacy, in Forum of Indian Regulators (FOIR) may
terms of Section 49 of the Act, has to be be one such platform to evolve such an
with different stakeholders. The different arrangement.
organs of the government as well as the
Copyright © Kaushal Kumar Sharma
156 COMPETITION LAW REPORTS (NOV-DEC 2011)