2 Consumer Unity & Trust Society International The Relationship of Competition and Regulation Policy and Administration Professor Allan Fels, AO Dean Australia and New Zealand School of Government (and former Chairman of the Australian Competition and Consumer Commission) 15 May, 2006 New Delhi, India

3 1.Introduction Competition policy and general regulation Competition policy and regulated industries Competition authorities and sectoral regulators Competition law in regulated industries Do competition and regulatory policies complement or conflict with one another?

4 2.General Regulation Vast number of laws, regulations and government policies affect the state of competition Comprehensive competition policy includes all government policies that affect the state of competition Antitrust or competition law only one element

5 National Comprehensive Competition Policy National Comprehensive Competition Policy prohibition of anti competitive conduct (traditional antitrust laws) for all businesses without exception liberal international trade policies free movement of all goods, services and factors of production (labour, capital etc) across internal borders removing government regulation that unjustifiably limits competition, eg legislated entry barriers of all kinds, professional licences, minimum price laws, restrictions on advertising the reform of inappropriate monopoly structures, especially those created by governments appropriate access to essential facilities a level playing field for all participants, including competitive neutrality for government businesses and an absence of state subsidies that distort competition separation of industry regulation from industry operations, eg dominant firms should not set technical standards for new entrants Includes laws and regulations at all levels of government (federal, state and local) that affect the state of competition. It includes:

6 The medical profession Deregulation policies

7 Elements in National Comprehensive Competition Policy Competition law applicable to all forms of business Review and reform of: –all laws at all levels of government that restrict competition –Public utility monopoly structure Competitive neutrality Generic law regarding regulating access to “essential facilities” Prices surveillance regime

8 Energy, telecommunications, transport, water etc. Utilities which are natural or artificial monopolies Most often policy approach is regulation – but there is a range of possibilities for dealing with utilities: –Ownership and control policies –Exposure to increased interstate, interregional and international trade and competition –Structural break-up –Application of competition law –Access laws –Variety of other government polices Regulation of Utilities Regulation of Utilities

9 Access Laws Telecommunications – example “the last mile is uncompetitive”. Without access by competitors to use lines owned by monopolist it is difficult to compete “Essential Facilities” – facility is a monopoly Criteria (in Australia) for access under the law: –Use of the facility is necessary input in a production process –Would be uneconomic to duplicate or develop that facility, or more simply, that it is a natural monopoly –Would be in the public interest to give access as it would promote competition and efficiency Pricing access – balancing effects on competition and investment

10 Retail Price Control Rate of return regulation CPI - X

11 Competition Authorities and Sectoral Regulators Competition authorities view the relationship as very challenging Regulated sectors usually uncompetitive Competition constrained by regulation Overlapping work causes tensions Problems largest in developing countries The problems not unique to government (“joined up government” etc.)

12 Ideal Relationships Little or no anticompetitive regulatory law Competition body has paramount decision making power on competition-related issues In theory, the regulators should be on same side: Procompetition regulation enhances growth Objectives similar In practice, they may not be

13 Importance of competition culture, and central government pressure for competition law Australia’s experience Achieving Ideal Relationships

14 Non ideal relationships exist in most countries Problems may be worse in developing countries The importance of acknowledging that arrangements are not ideal – and of making the best of the situation The Reality: Non Ideal Relationships

15 Differing Ways Agencies’ Interests can Intersect Shared value Agency A Extra value for one, neutral for the other Agency A Agency B Conflicting value Agency A Agency B Dovetailing differences Agency A Agency B

16 Statutory powers of competition agency Concurrent powers Joint appointments, staff transfers and exchanges Advocacy power for competition agency Agreements to cooperate Information exchange Instruments of Cooperation

17 Common appeals route Procompetition regulatory impact assessment Competition authorities can intervene Consistency in Law

18 Shared culture and values Strong direction from centre, and from legislation Recognition, acceptance by agencies of need to cooperate Sound, ongoing cooperative relationships Careful management of political environment Managing Collaboration

19 Do competition and regulatory policies complement or conflict with one another? Conclusion (1)

20 Conclusion (2) Aim for the ideal Acknowledge cross-agency relationships may be imperfectly structured Make an inventory of problems Analyse and resolve them