January 15, 2021 6:33:41 am
From market studies into the telecom, pharmaceuticals and the digital market sectors to a review of the model concession agreements in key infrastructure sectors including airports, ports, railways and electricity, the Competition Commission of India (CCI) is reassessing India’s competitive landscape, the antitrust panel’s Chairperson Ashok Kumar Gupta told The Indian Express in a September interview. Edited excerpts:
The CCI is learnt to have initiated studies on the telecom, pharmaceuticals and digital market sectors. How were these sectors selected?
The Commission has now decided to undertake market studies in pharmaceutical sector, telecom sector and digital market sector. Over a period of more than 10 years of enforcement of competition law, the Commission has had the occasion to look into multiple competition issues in these sectors. The Commission has received cases with allegations of anti-competitive conduct by market players in these sectors as well as reviewed various combination notices in these sectors.
Thus, the Commission intends to conduct market studies in these sectors. Specifically, the genesis of the study in the pharmaceuticals is a workshop on the sector organised by the Commission in 2018 and a note that was formulated based on the issues raised by stakeholders at the forum.
The study that is now underway is an attempt to empirically examine those issues, e.g. competition issues in pharma distribution segment, the extent of prevalence of branded generic drugs in India and their implications for competition, entry barriers for bio-equivalent drugs etc. Appropriate enforcement of regulation and the competition law instruments, based on a clear understanding of how competition works in this sector and that of the interplay between competition and regulation, could improve market outcomes. The study, thus, also aims to identify areas of cooperation between the Commission and the relevant sector regulators.
What is the scope of the study into the digital sector?
The study on digital mergers is very different in scope and focuses on a specific issue. In view of the potential enforcement gap that asset/turnover based notification thresholds may leave in digital markets (given that the target enterprises in digital markets may operate on a zero/low turnover, asset light model), the Competition Law Review Committee (CLRC) recommended introduction of an enabling provision in the Competition Act empowering the Government in consultation with the Commission to introduce any other criteria for notification that may include a deal-value threshold. As on date, there is no readily available comprehensive dataset on digital mergers in India.
The Study on Mergers and Acquisitions in Digital Markets has been initiated to track the non-notified acquisitions and mergers in the digital sector in India, their deal values and the trends and patterns of such transactions to provide an empirical basis for the legislative amendment. The study is expected to serve as the groundwork necessary to come up with possible notification criteria that may be appropriate to capture digital transactions for merger scrutiny. In the digital market, we may look to facilitate the entry for a new platform by ensuring parameters like data portability are followed, especially in cases where there is amassing of large amounts of data. If amassing of data acts as a barrier to entry, then the CCI can, through its power, suggest remedies within the regulatory framework.
Does the CCI see a problem of concentration of power in certain sectors like airports, ports, highways, etc?
Concentration of power by itself is not a concern. Policy of the government is to make economy more efficient, and in that process what the CCI can do is look at whether the dominance is abused or not. If there is abuse of dominance, CCI can take action under Section 4 of the Competition Act … Sectors like airports, ports, highways, etc are those with natural monopolies, where the competition is not in the market, but for the market.
What is important is that the tender design for award of concessions ensures that competition for the market is vibrant — that there are enough players who are able to participate. Competition for the market through well designed tender documents and concession agreements will ensure that the outcomes are pro-competitive. It is like the digital sector, where the winner takes it all.
Once an entity has competed in the tender process and emerged as the successful bidder, they have won the market — which could be an airport or a port or a highway. Then they have that market for the next 30 or 40 or 50 years based on the time required for the entity to recoup their investments made into the project.
What is important that the incentives created are right, in this context we are reviewing some of the Model Concession agreements in sectors such as ports, airports, railways, electricity, etc.
What was the trigger behind the market study of the telecom sector?
The need for a study in the telecom sector emanated from the advent/adoption of new technology with its obvious bearing on competition. The dynamic nature of the sector and constantly evolving business interactions between and across industries have led to new competition dimensions. The key trends and observations that have emerged from the study inter alia relate to vertical integration, parameters of competition, infrastructure sharing, unbundling of infrastructure and service, traffic management, spectrum acquisition and collection of data. Telecom is no longer a pure voice market and with data-centric nature of the sector and convergence, many business models are emerging. So, we are trying to identify what issues we might run into going forward that can impact the competition landscape. Data prices in India are the lowest in the world. On tariff increases by telecom operators, standard economic theory guides us that in oligopolistic industries with only a handful of players, the price changes often happen in tandem and price parallelism itself is not an indicator of cartelisation. In network industries like telecom, airlines, or even e-commerce, reaching a critical mass of consumers is necessary for the entity to make business sense and once that has happened, usually these sectors see the companies trying to reach an equilibrium price that explain price movements in the short run.
Telecom especially is a sector that requires large investments and the players are there for the long haul and exit by certain players is as much an indicator of competition as entry. ICRIER has submitted its market report, and right now we are in the process of consulting with the Department of Telecommunications and other stakeholders. We would soon apprise them of the areas that we see could pose a problem in the future from a competition point of view. This will also help us to be better equipped to deal with any anti-competitive conduct if it arises.
Given that markets are not static and that the regulatory stance needs to be periodically nuanced and the enforcement toolbox need to be adapted to these changes, is the Commission looking at the fresh consolidation and the resultant concentration of market power in other sectors such as airports, ports, city gas distribution, solar power and retail?
Consolidation may stem from diverse needs and may lead to different market outcomes depending inter alia on the competition dynamic in the sector in question, the competitive relationship between the business enterprises involved, technological changes etc. Under its combination review mandate, the Commission examines the issue of consolidation and resultant concentration of market power across sectors at the time of assessing transactions that meet the asset/turnover threshold for notification. The Competition Act, 2002 (the Act), lays down a holistic framework for assessment of mergers and acquisitions, including factors such as the level of concentration in the market, the change in concentration owing to the transaction and the extent of effective competition likely to sustain in the market post- transaction. Thus, it is a case-by-case, evidence-based exercise, which allows the Commission to take into account the specificities of each sector, the dynamic nature of the market/technology involved, the implications of the transaction on competition and the synergies that may be derived from the transaction.
Combinations which may adversely affect competition are approved subject to remedies with a view to preserve competition in the relevant markets and protect consumer welfare that would be lost otherwise. Remedies have been ordered thus far to prevent likely market distortions resulting from combinations in industries such as cement, pharmaceuticals, seeds, agro-chemicals, automobile components, electrical equipment, entertainment, industrial gas, e-platforms and mineral processing. Divestments have been ordered where the parties were close competitors and their deals would have resulted in increased prices, reduced choices to consumers and/or lesser innovation. Behavioral compliances were stipulated in vertical mergers likely to foreclose inputs to competitors or impact level playing field. Mergers exhibiting both elements were subjected to hybrid remedies
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