Competition Policy and Sectoral
Regulation
By
Dr. Cezley Sampson
Head of Legal & Regulatory Practice
CPCS Transcom
CUTS 7UP4 Project
Accra, Ghana
June 2008
1
Background
• The introduction of competition into
dominant firms creates a new problem.
• These firms were once natural monopolies
with one vertically integrated player.
• The introduction of competition into the
competitive sector leads to competition law
being applied to the competitive sector and
industry specific law applied to the natural
monopoly sector.
• Telecommunications and electricity now
experience this phenomenon.
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Telecoms and Electricity
• Generation and retail is now competitive and subject
to competition law, transmission and distribution
remain natural monopoly, requiring regulation.
• One new role of the industry regulator is to facilitate
competition - entry to the competitive parts as
against the exclusion of new players as traditionally
practised by regulators.
• In telecoms the last segment - connection to the
home is no longer a natural monopoly - wireless on
the local loop, fibre optic, cable, cable television,
cellular and satellite.
3
Tension in the Industry
• The issue in the two industries now
surrounds interconnection or access to the
essential facilities by third parties.
• Regulators are now required to ensure free
and non-discriminatory access.
• In some regimes, competition rules
specifically prohibit misuse of dominant
position or behaviour which lessens
competition e.g New Zealand.
4
Difference Between Competition
and Regulation Policies
• Competition is ex-post and regulation is ex-ante.
• Anti-trust defines conduct after the fact whilst
industry specific regulators define rules for price
setting, investments and service standards ex-ante.
• Ex-ante rules puts pressure to get decisions so as
not to halt production, regulation however must be
expedient.
• Ex-post does not call for such expediency except in
predatory pricing.
• Ex-ante intervention forces firms to expose
information it would not normally disclose ex-post.
• It is less risk for the firm to conceal or manipulate
information ex-post rather than ex ante.
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Differences Cont.
• Anti-trust authorities assess the lawfulness of conduct,
regulators have more extensive powers and engage in very
detailed proscription of conduct. Regulators have more
discretionary powers.
• Private parties play a bigger role in antitrust matters than in the
regulatory process – Most antitrust cases are brought by
private parties.
• Interest groups tend to intervene in regulatory process to alter
policy, whilst they intervene in competition cases to modify
conduct.
• In anti-trust matters investigation and prosecution are
separated. Regulators conduct regulatory hearings and
adjudicate on their outcome. Anti-trust matters carries a high
burden of proof.
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Differences Cont.
• Competition rules apply economy wide and
in a negative form – prohibiting activities:
not to fix prices, not to rig bid and not to tie
product sales etc.
• They emphsise what market agents should
not do - they proscribe activities.
• Regulators do the reverse and tell market
agents what to do - they prescribe activities.
7
Development of the Two
Institutions
• Historically, the two institutions evolved separately
with limited formal relationship.
• Most country rules are ambiguous.
• The issue is which law or agency takes precedence.
• Where the rules are not clear the environment for
excessive litigation develops.
• The courts have jurisdiction to determine the
application of the respective law.
• In South Africa for example the court decided that
Competition authority has jurisdiction over bank
mergers.
8
Resolving the Problem
• Giving primacy to the sectoral regulator on
competition law matters in the regulated
industry.
• Giving precedence to the anti-trust regulator;
requiring the industry regulator to refer
competition issues in the industry to the
competition authority for resolution.
• Concurrent jurisdiction or require
consultation.
• The use of a single agency for antitrust and
industry specific regulation e.g. Australia,
New Zealand and Barbados.
9
Industry Law has Precedence
• In South Africa the government recognised
the problem of overlapping jurisdiction and
provided for industry regulatory act to be
exempted from competition law.
• The result is that all regulated industry argue
that they are not subject to competition law.
• Problem expose the system to inconsistency
of decisions on competition matters –
leading to lack of confidence in competition
law.
10
Concurrent Jurisdiction
• In the UK, both the Director General of Fair Trade the
competition regulator and the industry specific
agencies have concurrent jurisdiction.
• Different agencies may interpret the rules differently
creating the requirement for a consultative
mechanism.
• Concurrency may lead to duplication.
• The argument for concurrency is that: sectoral
regulators require authority to enforce competition;
and competition agency norms are not always
suitable for network industries. A firm with a 10 %
share of the market can have significant market
influence on prices.
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One Agency to Handle Competition
And Industry Regulatory Matters
• New Zealand until recently used only competition
law - no industry specific law.
• Aptly termed - “light handed approach.”
• Competition rules are too general - gives rise to
frequent intervention of the courts to interpret and
provide certainty through judicial precedent.
• Very costly process - long drawn out cases.
• Requires an environment where the judiciary has a
long tradition of competition matters.
• New Zealand recently introduced industry specific
rules in the form of a Interconnection Dispute
Commissioner.
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Competition Law Carries
Precedence
• Here, the Industry regulator conducts the
investigation but refers competition matters
to the Competition Authority for a decision.
• Ensures consistency of application across
all industry – eliminates arbitrage.
• Ensures the higher skills of competition
experts on competition matters are fully
utilised.
• May slow down the process.
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Conclusion
• Explosion of competition in certain industries like
telecommunications; render industry regulation
unnecessary.
• Regulation in the telecommunications industry
involves the application of competition policy.
• Begs the questions: Is sectoral regulation still
needed in telecommunications?
• Should competition law replace industry law where
strong competition has developed?
• Regulation should not be seen as an intrusion but
necessary to limit monopoly power and to promote
conditions for effective competitioncompelementary.
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