1. 1 Competition Policy and Sectoral Regulation B y Dr. Cezley Sampson Head of Legal & Regulatory Practice CPCS Transcom CUTS 7UP4 Project Accra, Ghana June 2008

2. 2 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.

3. 3 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.

4. 4 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.

5. 5 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.

6. 6 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.

7. 7 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.

8. 8 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.

9. 9 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.

10. 10 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.

11. 11 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.

12. 12 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.

13. 13 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.

14. 14 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 competition- compelementary.