30 July 2008

1. Discussion on the Concurrent Jurisdiction Provision in the Competition Amendment Bill 30 July 2008

2. Summary of Recommendationsons • A clearer appreciation of the policy imperatives underlying both ex ante and ex post regulation ought to clarify the respective regulatory functions of the Authority and the Competition Commission • Prevailing legislation in the form of the ECA and the Competition Act do not satisfactorily and explicitly distinguish ex ante regulation from ex post regulation • However, were the ECA to be understood within the policy framework which it operates, it is clear that its primary preoccupation concerns ex ante regulation of competition matters • Therefore, in principle, the ECA and Competition Act ought to be read in a harmonious fashion rather than as being in conflict with one another

3. Summary of Recommendations • Ch 10 of the ECA sets out an ex ante framework designed to address structural problems inherent in the liberalization of the sector. Ex post only insofar as it relates to enforcement and compliance of ex ante rules. • The management of concurrent jurisdiction should facilitate the stated policy imperatives which underpin the objective of regulation. Replication of jurisdictional competence should be avoided. • The Authority should be vested with exclusive ex ante regulatory powers as contained in section 67(4) of the ECA. • The Competition Act and the Competition Authorities should be vested with ex post competition regulation powers. To this end, the Authority will seek an amendment to have section 67(1)-(3) of the ECA repealed. We are engaging with DOC in this regard.

4. Summary of Recommendations • Section 67(9) of the ECA should be amended to replace the words “subject to” with the words, “despite” or “notwithstanding”. Alternatively, the provision should be amended with a view to clarifying the respective roles and asserting jurisdiction in this regard. • The Authority is uncomfortable with the inclusion of section 3(3)(c) of the draft Competition Amendment in its current form. Although it represents a laudable attempt to create certainty regarding jurisdiction it may in fact lead to uncertainty and provide an avenue for legal game playing, forum shopping and – ultimately - regulatory evasion. • The provision in the Competition Amendment Bill regarding conflict or inconsistency (section 3(3)(c)) should be removed or replaced with an alternative provision that makes clear the distinction between the roles of the regulators rather than attempting to establish primary jurisdiction of one over the other in the case of potential conflicts that are not defined in the legislation.

5. Overview • Background • Underlying policy imperatives of the ECA • Other relevant provisions of the ECA • Section 67 (4) of the ECA • Distinction between ex ante and ex post • Implications for concurrent jurisdiction • Comments on the Competition Amendment Bill • Recommendations

6. Background • ECA espouses the policy imperative of managed liberalization of the broader electronic communications market through the application of certain regulatory mechanisms • Managed liberalization entails the introduction of facilities-based competition and services-based competition • Provision for an ex ante regulatory framework to “manage” the introduction of competition and alleviate market failure Underlying policy imperatives of the ECA

7. Background Other relevant provisions of the ECA Chapter 7 of the ECA • Mandatory interconnection • Promulgation of a regulatory framework to facilitate the conclusion of interconnection agreements • Mandatory interconnection intended to promote the attainment of the positive network externality • Interconnection charges are to be determined in accordance with the principles of ex ante regulation detailed in Chapter 10 of the ECA • Ex ante regulatory framework enable the Authority to intervene in the determination of appropriate interconnection charges where the pricing structure for interconnection translates into an observable market failure which affects the competitiveness of a market

8. Background Other relevant provisions of the ECA Chapter 8 • Mandatory leasing of electronic communications facilities, including essential facilities • Promulgation of a regulatory framework to facilitate the conclusion of facilities leasing agreements • Mandatory facilities leasing intended to promote the efficient utilisation of electronic communications facilities and the promotion of service-based competition • Facilities leasing charges are to be determined in accordance with the principles of ex ante regulation detailed in Chapter 10 of the ECA • Ex ante regulatory framework enables the Authority to intervene in the determination of appropriate facilities leasing charges in the case ofmarket failure

9. Section 67 (4) of the ECA • Chapter 10 generally provides for the regulation of competition matters over commercial activity which is licensed by the Authority • Section 67 (4) is more specific in the manner in which the regulation of competition matters is to occur • Section 67 (4) envisages the promulgation of a regulatory framework which the Authority would have recourse to in justifying its intervention in the functioning and performance of relevant markets • Regulatory framework envisaged in clearly ex ante and not ex post • Not concerned with intervening in markets where the observable market behaviour may be characterised as horizontal coordinated practices, vertical restraints or abusive unilateral conduct

10. Section 67 (4) of the ECA • Rather, section 67 (4) is concerned with detailing the instruments for regulatory intervention which the Authority may have regard to in seeking to take corrective measures in markets structures which exhibit market failure, such as: • excessive wholesale or retail charges, • discriminatory charges, • cross-subsidisation which evades regulatory detection etc. • Section 67 (4) also carries forth the rationale for managed liberalization and the introduction of effective competition • Allows for the identification of those markets where there exists enduring market failure and imposing appropriate corrective remedies aimed at simulating the conditions of effective competition

11. Distinction between ex ante and ex post regulatory frameworks ex ante • Structural conditions and historical incidents may contribute to enduring market failure that is incapable of being corrected through adequate competitive process. • The identification of the relevant markets susceptible to ex ante regulation is premised on the following criteria: • Where the market exhibits high and non-transitory barriers to entry, • There exists observable durable market failure in the relevant market, and • Ex post competition law enforcement is inadequate to remedy the enduring market failure. • The nature of the remedy imposed is intended to proportionately alleviate the observable market failure in the least intrusive and justifiable manner • Essence of the remedy to be imposed is corrective i.e. remedial of the observable market failure

12. Section 67 (4) of the ECA ex post • Analysis concerns historic market conduct which has an anti-competitive effect in a relevant primary or adjacent market • Investigation of the market conduct may occur where there is a complaint regarding the market conduct i.e. the analysis is not prospective and forward-looking • Analysis mainly concerns behavioural market conduct of a particular nature, and does not necessarily concern itself with the structure of the relevant market • Importantly, the nature of the remedy is confined to an administrative penalty aimed at serving as a behavioural deterrent.

13. Section 67 (4) of the ECA ex post • Ultimately, the nature of the remedy is not intended to actively prevent the harm in the first place. Rather it is applied ex post or “after the fact” to penalise such conduct and establishes precedent for the type of conduct which would be prohibited • ex ante remedies, on the other hand, are applied prospectively to determine: • The pricing structure to be adopted i.e. cost orientation remedy – Long Run Incremental Cost method, Long Run Average Incremental Cost method, Fully Allocated Cost method, price cap etc.), • Reporting obligations to be adopted i.e. separation of accounts remedy compels the submission of reporting information in a differently aggregated manner (e.g.COACAM) and also compelling a firm to adopt a particular accounting methodology, • Behavioural commercial conduct to be adopted i.e. Non-discriminatory and reasonable access, transparent pricing, equitable and fair treatment • ex post remedies do not go as far as ex ante and are fundamentally different in their nature due to the different policy objectives associated with ex ante and ex post regulation

14. Framework for Ex-Ante Regulation ACCESS Inteconnection Facilities Leasing Essential Facilities Infrastructure Non-discrimination/transparency/terms and conditions/dispute resolution MARKET FAILURE Inteconnection Facilities Leasing Essential Facilities Services Chapter 10 Remedies Remedies Remedies Periodic Review of remedies

15. Implications for Concurrent Jurisdiction • A clearer appreciation of the policy imperatives underlying both ex ante and ex post regulation ought to crisply delineate the respective regulatory functions of the Authority and the Competition Commission • Prevailing legislation in the form of the ECA and the Competition Act do not satisfactorily and explicitly segregate ex ante regulation from ex post regulation • However, were the ECA to be understood within the policy framework which it operates, it is readily discernable that its primary preoccupation concerns ex ante regulation of competition matters • Therefore, in principle, the ECA and Competition Act ought to be read in a harmonious fashion rather than as being in conflict with one another

16. Implications for Concurrent Jurisdiction • Understood in this manner, concurrent jurisdiction then entails concurrency in as far as there exists two different regulatory institutions regulating for competitive conditions in the same area of commercial activity • However, the regulatory instruments at their disposal are substantially different, and so are their respective areas of regulation • This is due to the policy underlying the different focus area of each regulatory institution • Furthermore, the regulatory outcomes from each institution are substantially different • Therefore, the MOU is intended to facilitate mutual cooperation and technical assistance between the two institutions, and not act as a legislative instrument for the resolution of jurisdictional competence between the Authority and the Competition Commission

17. Comments on The Competition Amendment Bill • The Competition Amendment Bill (“the Bill”) provides for concurrent jurisdiction by way of ‘an agreement between the Competition Commission and that other regulatory authority’ • We agree with this in principle insofar as it will facilitate a constructive working relationship between the two institutions • In the case of inconsistencies or conflict the Bill provides that the provisions of the Competition Act prevail to the extent of the conflict or inconsistency - unless there is a relevant agreement that sets out the manner in which concurrent jurisdiction is to be exercised. • We are concerned that the consequences of the wording may be far reaching and may provide an avenue for legal opportunism by firms attempting to avoid being subject to regulation by one or other regulatory institution. We believe that the provision as currently worded does not go far enough to provide for the distinction between ex ante and ex post regulation, thus providing for the inherent harmonious coexistence of the two Acts.

18. Recommendations • The distinction between ex ante and ex post regulation, properly understood, would make the current wording of the Bill providing for concurrency redundant. • This is because there ought not to be any inconsistencies in the interpretation of either the Competition Act and the ECA since each statute concerns itself with a different aspect of regulating the broader electronic communications market. • However, the only caveat here is the current wording of section 67 (1), (2) and (3). • For an even clearer distinction between ex ante and ex post regulation, it may be necessary for sections 67(1), (2), and (3) to be removed from the ECA as they may not be consistent with an ex ante framework.

19. Recommendations The provision in the Competition Amendment Bill regarding conflict or inconsistency (section 3(3)(c)) should be removed or replaced with an alternative provision that makes clear the distinction between the roles of the regulators rather than attempting to establish primary jurisdiction of one over the other in the case of potential conflicts that are not defined in the legislation.