Moneycontrol
Jun 06, 2013 11:01 AM IST | Source: CNBC-TV18

CCI probes CAG report on telcos' role in spectrum auction

The CCI is examining a Comptroller and Auditor General (CAG) report that alleges that telcos formed a cartel to cause the failure of the spectrum auction in November.


The Competition Commission of India (CCI) is probing if telcos were responsible for the failure of the spectrum auction in November reports CNBC-TV18's Malvika Jain. In an interview to CNBC-TV18, CCI chairman Ashok Chawla said the committee is examining a Comptroller and Auditor General (CAG) report that alleges that telcos formed a cartel to cause the failure of the spectrum auction in November. 


When asked, just like the tax authorities have a system of advanced rulings, if it was possible to provide and create such a system for competition related issues as well, he said, " There is no scope for advanced rulings on competition issues. I don’t think we can have any system because it is not an executive decision. It is a quasi-judicial process based on investigation and evidence."


But, about the issue of approvals for mergers and acquisitions (M&A), he said CCI has started the process of informally allowing companies or lawyers to come to the them and discuss what they propose to do.


CCI plans a revamp of the organisation’s structure to handle an increasing workload. It also hopes to reduce M&A compliance burden on companies.


Here is the edited transcript of his interview with CNBC-TV18


Q: The finance minister recently said that the role of the commission has to be enhanced. It has to maybe partner with other sectoral regulators and ensure that competition regulation becomes more effective in India. So going forward, what do you think would be the role of CCI? Do you think that all the regulators should refer all matters related to competition to CCI or maybe we can have an arrangement wherein just like the law ministry has officials deputed to various departments, can't there can be some kind of a set up for the CCI as well?


A: The general principle is that the sectoral regulators look after matters relating to their sector, while issues of competition and fair play in the market are the cocenrn of the CCI. This is an universally accepted paradigm and has been built into the Competition Act. We refer matters to sectoral regulators for their advice.


Q: But how do the sectoral regulators refer matters to you? How does TRAI for instance partner with CCI because in the TRAI Act there is no specific provision that mandaates that it has to refer the matter to the CCI?


A: No, it may not. But it can always come to us for advice and opinion. However, that doesn’t prohibit the CCI from intervening if there is sufficient evidence of carterlisation or an absence of fair play.


Q: Does that not in a sense make CCI a super regulator because on every decision the CCI can intervene? Where do you draw the line?


A: I wouldn't say it is a super regulator. But if you look at the overarching issues of the market and competition, the Competition Commission does have an across-the-sector-perspective.


Q: The finance minister mentioned that the CCI should not turn into another bureaucracy and stifle growth. How will you ensure that CCI actually becomes a partner in growth in India? Some lawyers and various experts have opined that the hefty penalty imposed by CCI will not solve the problem of carterlisation? How will you ensure that CCI actually partners growth in India?
 
A: I don’t know what is going to solve the problem then. We don’t come in and impose penalties on the basis of whim and fancy. There is a very detailed process of investigation and the commission hears the companies which are alleged to have made violations before the penalty is imposed. There has to be adequate evidence, either direct or circumstantial, for us to conduct a probe and initiate punitive action.


Q: There are certain companies who feel that while deciding the quantum of penalty, the CCI does not accord them an adequate hearing, do you agree with this view?


A: All companies are given sufficient opportunities to present their case. The Act, as it stands today, doesn’t provide for specific hearing.


Q: Do you think that needs to be changed?


A: I believe that this is part of the Competition Act Amendment Bill, which has been tabled in Parliament. So, if that goes through and becomes law, then it will binding on us to follow that principle.


Q: Just like the tax authorities have a system of advanced ruling, is it possible to create such a system for competition-related issues as well to provide clarity to industry but also lighten some of the commission's workload?


A: There are two different aspects of the Competition Act — One, judging behaviour based on evidence. It is a quasi-judicial process based on investigation and evidence. So, I don’t think there is any scope whatsoever for engaging with industry or giving any advanced ruling.


Two, the CCI grants approvals for mergers and acquisitions (M&A). We have already made the process transparent by informally allowing companies or lawyers to come to the CCI and submit their proposals and seek clarifications.


Q: Is it possible to have a formal setup wherein industry and CCI can engage with each other?


A: No amount of professional engagement will substitute the decision taken by the commission which is a body of seven members.


Q: Eventually isn't it the file that is put up by the professionals on the basis of which decisions are taken?


A: That is not binding or final. Eventually, it will depend on what the commission, as a judicial body, decides. In executive matters and decisions such as taxation there is a scope for advanced ruling or telling people what the decision is going to or likely to be. In cases which are based on evidence, on decisions within the corners of the law, it may not work.


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Q: As far as the CCI is concerned — the workload of the commission is increasing with each passing year. How do you plan to handle it? 


A: That’s true. In fact we are slowly trying to build capacity, both in terms of numbers and also in terms of the quality of the people and their exposure. The commission recently farmed-out a study to one of the Indian Institutes of Management to take a look at the organisational structures and offer guidance on how the CCI should evolve over the next few years to allow it to be able to cope up with much more workload. 


Q: There is a system which has been provided for in the Competition Act to handle investigations against cartelisation, for abuse of dominant positions. But even after the CCI gives a clean chit, the perception that the alleged parties came together to decide prices. What is your view on this??


A: Companies that come together but didn’t come forward to bid, is not a cartel. Forming a cartel is an economic activity wherein companies come to together to earn supernormal profits and harm the consumer. So, we test every case against this benchmark.


Q: How can the comapnies jointly decide, in the case of the telecom sector, of not coming forward to bid after the government set the auction reserve price after consulting with industry?


A: We will have to get the details and test it against the definition of a cartel and the provisions of the Competition Act. The word cartel, in a loose sense, might mean something different. However, the defition of cartelisation under the Competition Act, could be very different. We will see how it works.


Q: As far as the telecom sector is concerned, what do you think is the exact or sufficient number of companies in this sector to ensure that there is competition? It is becoming increasingly clear that eventually consolidation will take place in the telecom sector and telecoms will have to come to the CCI for approval?


A: That is something which many sectors go through domestically and overseas. When activities or sectors are opened up, a lot of participants come in. They are looking for the pot of gold at the end of the rainbow. Maybe there are one too many before consolidation takes place. So, telecom perhaps will go through the same cycle in India. Though it may not be possible to fix the number of participants in any given sector or market, the number position on what the number should be, it will vary from circle to circle, it will vary on what the market perception of the corporates is. We are not there to regulate the functioning of the market. We just want to make sure the market functions in the manner in which it should function.


Q: Another sector which is probably prone to abuse of a dominant position, is the real estate sector. The CCI had passed a landmark judgement against DLF and the matter is now before the Competition Appellate Tribunal. But DLF is not the only company against whom CCI received complaints. There were complaints against Unitech, Parsvnath and almost every other real estate company. How do you think this sector can be regulated more effectively so that the consumers don’t have to approach the Competition Commission of India and secondly, what is it that the companies can do on their own to improve their relationship with buyers ?


A: We went through the whole process regarding the subject that you are refereing to. Apart from imposing a penalty on DLF which was found to be dominant in a certain geographical areas and abusing its dominance, we also looked at their agreement with the buyers.


Q: The CCI's buyer-agreement was only applicable to DLF. What about the entire realty sector?


A: True. It is only applicable to DLF. But what we indicated after passing the order that was put out in the public domain, is that this model seems to be a good enough for all real estate companies to adopt if they wish to. But beyond that, unless matters specifically are brought to the CCI and we find that there are violations of the Competition Act, we cannot unilaterally impose any model on all buyers.


Q: Have you referred these model guidelines to any other government department to maybe take it forward?


A: We will await the decision of the Appellate Tribunal on that.


Q: As far as the amendments to the Competition Act are concerned, there is also a proposal to hold companies responsible for abusive dominant position jointly and individually. Could DLF and Unitech together be held guilty of abusing thei dominant positions even if they are individually not dominant?


A: I would not want to go into specific names of sectors but the Amendment Bill tries to bring in the concept of collective dominance which basically means that even if companies are not structurally related but they are guilty if they behave in a manner which makes it obvious that the two are forming a combine.


Q: Sometimes it is an industry practice, then what do you do?


A: Industry practices would also perhaps fall within the definition of collective dominance because if everybody is doing that and that practice is something which is harmful to competition and is harmful to the interest of the consumer, then there is scope for the CCI's intervention if the law is amended.


Q: How do we distinguish between a consumer court and the Competition Commission of India?


A: The fundamental difference is that consumer courts come in when a consumer has a complaint against a particular company while the CCI's key objective is to ensure that corporates function in a manner which doesn’t distort their operations in the marketplace, abuse their dominance, don’t cartelise and at the end of the day, provide the consumer quality goods at competitive prices. So, we get to the consumer welfare indirectly through appropriate optimum functioning of the market whereas the consumer courts deal directly with the consumers.


Q: How does the CCI ensure that OMCs do not form cartels to fix fuel prices?


A: We did ask the petroleum ministry and it said that so far as the prices of petrol were concerned the ministry has no role to play. Since there is a prima facie opinion that the oil companies are fixing prices, we have referred the matter for investigation.


Q: How do you plan to ease competition regulations?

A: We constantly review the regulations to make sure that the burden of compliance is not unnecessarily heavy or harshly imposed.

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