Establishing International Competition Rules to Boost Pakistan’s Telecom Sector [Analysis]

by Syed Wajid Ali

In countries like Pakistan where both Competition Authority and Sector Regulator are assigned with the powers to review competition cases, it is critical to put the right mechanism in place to avoid overlaps, uncertainty or contradictory decisions.

In order to promote healthy competition in the Telecom Sector, It is imperative for both the Sector Regulator and the Competition Commission that the competition rules set forth under the Telecommunications Act and those established pursuant to the Competition Act are consistent.

This can be done by assigning exclusive oversight authority to:-

  • The competition authority (e.g., in the United States) or
  • The sector regulator (e.g., Singapore and Hong Kong).
  • Alternatively, if concurrent authority is assigned to the competition and regulatory agency, then rules must be adopted to coordinate their actions (e.g., EU Framework).

Objective of this article is only to concentrate on the jurisdiction issue of reviewing the competition cases. Rest of the issues can be delve upon by the PTA in its regulations/guidelines. In the light of International Best practices, below mechanism is proposed for the consideration of the MoIT, CCP and PTA.

General Principles of Competition Law, Rules and Regulation

The general goals of competition rules are to protect the process of competition, maximize consumer welfare, and promote innovation and economic growth.

In this process, Telecom Service Providers have incentives to innovate and be more efficient in order to reduce costs and pass savings on to consumers.  This struggle for superiority results in competition that delivers lower price to the consumers, multiple choices and better quality of service.

If the competitive process is in place, exit from the market should not be a matter of concern for competition policy.  Instead, competition policy should be concerned about identifying and sanctioning practices that are harmful to the competitive process and to the consumers.  Such practices generally include:

  • Anti-competitive agreements e.g. bid rigging, price fixing, group boycotts
  • Anti-competitive behavior by dominant firms e.g. refusal to deal, predatory and excessive pricing, tying and bundling, cross-subsidization
  • Mergers and acquisitions that have a strong negative impact on competition.

This type of regulation is generally called as ex post regulation, meaning that it is adopted once the conduct or agreement has occurred, that is, “after the fact.”  Its goal is to investigate and remedy, where appropriate, anticompetitive conduct or agreements and this should be the responsibility of the competition authority. In our case it is Competition Commission of Pakistan (CCP).

On the other hand, sector-specific competitive safeguards are often imposed to create effective competition by the concerned sector regulator. These safeguards are critical to facilitate efficient entry in markets and to control for incumbent providers’ first mover advantages, thus ensuring a transition toward competitive markets.


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This type of regulation is generally referred to as ex ante regulation, meaning that it is adopted “before the fact.”  Its goal is to preempt practices that may restrict, limit or obstruct competition until the market becomes effectively competitive. Until that time, ex ante regulation would apply asymmetrically, that is, imposing more burdensome requirements on the dominant operator.

Once the market is effectively competitive, ex ante regulation should be rolled-back, relying on ex post regulation to achieve the benefits of the process of competition. Ex ante regulations are the responsibility of the Sector Regulator.

Table 1: Comparison of ex ante and ex post regulation

  Ex post regulation Ex ante regulation
Enforcement Authority Competition Authority and on occasions shared with Sector Regulator Sector Regulator
Analysis After the fact/backward-looking Before the fact/forward-looking
Intervention Finding of anticompetitive conduct required (i.e., abuse of dominance, anticompetitive agreement or merger) Finding of dominance or significant market power (SMP) is sufficient

 

Definition of the framework for analysis

In assessing anticompetitive conduct, regulatory and competition authorities typically follow a series of sequential steps.  As shown in Figure below, both ex ante and ex post analysis starts by:

  • Defining the relevant market; and
  • Assessing dominance. The inquiry ends at this point in the case of ex ante regulation.

In the case of ex post regulation a further step is needed to determine whether the conduct is abusing the dominant position. This general framework for analysis, or slight variations of it, is applied for the enforcement of competition rules in many countries around the world.  For example, in the United Kingdom the ex post inquiry into anticompetitive conduct requires a finding of whether it is abusing that dominant position

Step – 1 Relevant Market definition

Relevant Market definition is an analytical tool to identify and define the boundaries of competition between firms. The “hypothetical monopolist” or the “small but significant, non-transitory increase in price” (“SSNIP”) test is used as the standard methodology to define the relevant market.

This concept is used in order to identify the products and undertakings which are directly competing in a business. Therefore, the relevant market is the market where the competition takes place. The enforcement of the provisions of competition law would be not possible without referring to the market where competition takes place.

This is supposed to be done by the sector regulator. We will not go into the details of how the relevant market is determined as our focus here is on the jurisdiction issue of the competition rules.

Step – 2 Assessment of market power

In economic terms, market power is typically considered as the power over price and output. Dominance is a legal concept and is generally understood to exist when a firm holds significant market power (SMP), that is, a high degree of market power.  The main characteristic of a dominant firm in a relevant market is its ability to act to a significant extent independently of its competitors, customers and ultimately of its consumers.  This frees the dominant firm from the pressures that normally shape a firm’s conduct in an effectively competitive market. Assessment of the market power is also the responsibility of the sector regulator.

Step – 3 Remedies

  • Ex ante remedies
  • A finding of dominance (single or collective) triggers the adoption of ex ante remedies by the sector regulator. These should be appropriate and proportionate to address the specific circumstances of the case at hand.  Ex ante remedies can conceptually be applied both at retail and wholesale market levels.  However, whenever possible any observed market failure at the retail level should be addressed first by regulating its wholesale input market.  Moreover, in order to adjust regulation over time, market reviews should be conducted periodically (every 2 years in our case).  If after conducting a market review process, the authority finds that a previously regulated market is now effectively competitive (i.e., that no firm, or group of firms, is in a dominant position), then ex ante regulation should be withdrawn or amended.
  • Ex post remedies

Holding a dominant position is not an offense; it is the abuse of such dominance that is the concern of ex post competition policy. Ex post competition policy is concerned with cases where a firm, or group of firms, abuses its dominant position in a way that harms competition.  While there is no overarching definition of what constitutes abuse, there are some guiding principles:

  • behavior is only abusive where it causes or is likely to cause clear and demonstrable harm to consumers;
  • competition law should not be used to protect competitors as consumer welfare is not enhanced with the protection of inefficient firms; and
  • the law of abuse should not focus on the short term.

Once a finding of competitive harm or the abuse of dominant position has been made, competition authorities should chose the type of remedy or sanction that is best suited to restore effective competition and deter similar anticompetitive conduct in the future.  To this end, competition authorities are generally given a broad set of potential actions to choose from, including Fines, Compensation and Settlements & commitment

Merger Review

A review of the competitive impact of mergers is commonly performed by competition authorities and/or sector regulators around the world.  This includes countries such as Singapore, the United States, and the United Kingdom, among others.

A central concept of merger review is a comparison of competition with and without the merger.  The competitive situation without the merger is sometimes referred to as the counterfactual.  In most cases, the best starting point for the counterfactual is prevailing conditions of competition, i.e., the conditions of competition existing before the merger.


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It is also necessary to take into account likely and imminent changes in the nature of competition in order to reflect, as accurately as possible, the nature of rivalry without the merger.

Recommendations

In view of above following is recommended:

  • Pakistan Telecommunication Rules – 2000 may be amended wherever required in the light of Competition Act – 2010 instead of bringing new competition rules.
  • PTA may come up with ex ante regulations on the “Process of determining of Relevant Markets” and “Assessment of Market Power” along with the “Merger Review process” in consultation with the telecom industry.

Syed Wajid Ali has 37 years of experience in the Telecom Sector with 12 years’ experience purely on Telecom Regulatory & Interconnect Affairs



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