Competition among the regulators

• There have been many instances of turf wars among direct regulators and bodies across the industries in India.
• For example, the ongoing turf war between the Competition Commission of India (CCI) and the TRAI (Telecom Regulatory Authority of India).

Who are the regulatory bodies?

A competition regulator or regulator is a government agency, typically a statutory authority. Sometimes it regulates and enforces competition laws, and may sometimes also enforce consumer protection laws.

Some example of important regulatory bodies:

• RBI (Reserve Bank of India)
• SEBI (Securities and Exchange Board of India)
• IRDA (Insurance Regulatory and Development Authority)
• PFRDA (Pension Fund Regulatory & Development Authority)
• TRAI (Telecom Regulatory Authority of India)
• FIPB (Foreign Investment Promotion Board)
• FSSAI (Food Safety and Standards Authority of India)
• BIS (Bureau of Indian Standards)
• BCCI (Board of Control for Cricket in India)

The Competition Act in India:

• The Competition Act, 2002 was amended in 2007
• It follows the philosophy of modern competition laws
• It prohibits anti-competitive agreements, abuse of dominant position by enterprises
• It regulates combinations (acquisition, acquiring of control and mergers and acquisitions), which causes or likely to cause an appreciable adverse effect on competition within India

Competition Commission of India:

• Competition Commission of India is a statutory body of the Government of India established in 2003.
• It is responsible for enforcing the Competition Act, 2002 throughout India and to prevent activities that have an appreciable adverse effect on competition in India.
• CCI consists of a Chairperson and 6 Members appointed by the Central Government.

Why is competition required?

• It promotes efficiency and innovation
• It ensures abundant availability of goods and services of acceptable quality at affordable/lower prices
• It offers wider choice to consumers

How TRAI came into existence?      

• The entry of private telecom service providers brought with it the inevitable need for independent regulation.
• It was established with effect from 20th February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997.
• It aims to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government.

The full story of the turf war between the CCI and the TRAI:

A turf war is raging between the Competition Commission of India and the Telecom Regulatory Authority of India over which agency will monitor anti-competitive tariffs in the telecom sector.

After the telecom regulator issued a consultation paper seeking industry comments on the issue, the Competition Commission asked the former to keep off the latter’s turf and refrain from laying down rules on predatory pricing by telecom service providers.

Reliance Jio’s advent stirs things up:

• Industry insiders believe this came about after Reliance Industries commercially launched the Jio network in September 2016 offering both data and voice services free for early subscribers.
• The three incumbent telecom players (Airtel, Vodafone, and Idea Cellular) took the fight to the government and to TRAI, alleging that Reliance Jio was indulging in predatory pricing to win market share.
• TRAI’s consultation paper asked for the industry’s views so that it could lay down rules on predatory pricing, the need to restrict promotional offers, assess the dominant market position and evaluate whether “the dominant enterprise is resorting to pricing below average variable cost.”
• However, the CCI tried to clearly demarcate the jurisdictions of the two entities through a letter.
• CCI said that while the “sector regulator creates structural conditions for competition and orderly growth of a sector”, the competition regulator “addresses the adverse effect on competition emanating from the anti-competitive conduct of enterprises, including predatory pricing.”
• It added that the sector regulator, meaning TRAI, may not have the “wherewithal for the determination of these issues, as such issues do not afford themselves to blanket prescriptions and the blunt instrument of regulation,” adding that market interactions need to be assessed on a case-to-case basis.
• In June, the CCI had rejected a case of alleged predatory pricing against Reliance Jio filed by Airtel. In its ruling, the fair trade regulator said that merely giving access to free services was not in itself anti-competitive.
• Thus, the complaints before CCI bore no results, as Reliance Jio was not in a dominant position.

What is a dominant position?

The term ‘dominant position’ is determined based on market share. Generally, a firm is considered to be a dominant position holder if the market share is significantly high (generally above 50% in the European Union), barriers to entry are also high, and there is no countervailing buyer power.

What is a ‘predatory pricing’?

• Predatory pricing is the act of setting prices low in an attempt to eliminate the competition.
• A sign of predatory pricing can occur when the price of a product gradually becomes lower, which can happen during a price war. This is difficult to prove because it can be seen as a price competition and not a deliberate act.
• Predatory pricing is illegal as it makes markets more vulnerable to a monopoly.
• Companies may engage in a variety of activities that intend to drive out competitors, such as create barriers to entry for new competitors or unethical production methods to minimize costs.

Another similar ongoing instance:

• The government’s proposal to regulate Bitcoin crypto currency has sparked a regulatory turf war between SEBI and the RBI.
• According to sources, the central bank is of the opinion that Bitcoin is a security rather than currency and should be regulated by SEBI. The proposal has not gone down well with the latter which opposes the suggestion.

In the past:

The SEBI and the IRDA had a turf war over the regulation of insurance companies and their activities which ended after the government’s intervention.

Why turf wars between the regulators need to be avoided?

• It will discourage democratic consultation process among the regulators.
• It may cause policy-paralysis
• It may harm market sentiment
• It may completely disrupt the industry associated

Conclusion:

• The spat between the CCI and the TRAI underlines the need for a consultation in order to ensure consumer welfare.
• Telecommunications is a highly technical sector. The highly technical nature of the issues associated with the industry necessitates a consultation with TRAI which is a specialized regulator.
• A competition regulator needs to play the role of a dynamic business facilitator and of a watchdog to check malpractices.
• The government should intervene to prevent huge damage to the industry.