Regulation v. Competition
Why competition authorities should regulate regulators
Background
In our last post, Temidayo wrote about the problem of excessive pricing in Nigeria’s telecoms sector. He spoke, inter alia, about the role that the Nigerian Communications Commission (NCC) needs to play to ensure that the sector is competitive.
Here, it is important to remember that the NCC has powers to enforce competition law under the Nigerian Communications Act, 2003 (NCA). For instance, under section 92 of the NCA, it is unlawful for licensees to engage in practices that have the purpose or effect of substantially lessening competition in any aspect of the Nigerian communications market. The now deceased Dr Chukwudiebube Opata wrote many articles analysing competition enforcement in Nigeria’s telecoms sector.1
Interestingly, the NCC had these powers long before the Federal Competition and Consumer Protection Commission (FCCPC) came into existence. And this does not just apply to the NCC: the sector regulators of insurance, aviation, broadcasting, and electricity have long had powers to apply competition rules in their sectors.
Therefore, one might see the addition of the FCCPC into Nigeria’s regulatory architecture as superfluous. Also, the sector regulators might be protective over their jurisdiction and would not want a new regulator poking around their sector (or maybe even exposing their shortcomings). For sector players, two enforcers might also be undesirable because there could be regulatory duplicity and contradictory decisions.
So, this begs the question: why do we need a competition authority? Why don’t sector regulators just regulate competition within their markets? Why should an authority that is, in effect, a ‘jack of all trades, master of none’, be entrusted with economy-wide competition regulation? These are very valid questions that this post aims to answer.
Regulatory capture & independence
The answer is actually quite simple: because the FCCPC, like other competition authorities, is an independent regulator.
Competition authorities have no stake, no interest, and no skin in the game in any sector or market in their country. All they care about is protecting and promoting competition for the benefit of consumers. And this is important because if sector regulators are solely responsible for competition enforcement in their sectors then they are unlikely to enforce or consider competition rules.
When an agency has regulatory and competition powers, it is more likely to use the former to discipline players; arguably because they have sector expertise and not necessarily subject matter expertise in competition law. However, this invariably comes at the expense of the competitiveness of the market because competition considerations might not feature in the analysis for regulatory interventions.
Alternatively, in the event that sector regulators consider competition rules, they will be faced with a tension between the interests of their regulated entities and those of consumers. And there is very little preventing them from choosing the interests of their licensees in order to make their sector profitable at the expense of consumers.
For instance, the Central Bank of Nigeria (CBN) may very well allow Nigeria’s banks to fix bank charges if it is in their best interests.2 Alternatively, the CBN may allow banks to boycott, and therefore, anticompetitively harm, a player in another sector if it ensures that banks are more profitable.3 It has even been alleged that Nigeria’s banks previously operated an FX cartel under the CBN’s watch.4 I could go on but you get the point. Put simply, the main constituents of sector regulators are their licensees, not consumers.
There is a term for this in academic circles: regulatory capture. It was introduced by the economics Nobel laureate, George Stigler, and it refers to instances where regulators are captured by the interests of their licensees, to the exclusion of all other interests; particularly the interests of consumers. There are many reasons why this may happen: natural bias from sentimental affiliation, competition with other industries, reliance on licensees for information about the sector, and of course, corruption. While these reasons range from the benign and unavoidable to the cunning and nefarious, the outcome is the same: the interests of licensee shareholders are prioritised above the interests of consumers, and occasionally, over the interests of the employees of the licensees and the environment.
Competition enforcement is worlds apart from sector regulation in this regard because its underlying rationale, and therefore, the mandate of competition authorities, is to protect consumers—their sole constituents. As an aside, we have even seen recent efforts to incorporate considerations about employees, as well as environment considerations, into competition law analysis.
Ultimately, the point here is that competition authorities are better insulated from being captured because their sole constituents are consumers, not licensees.
Regulator of regulators
This is why competition authorities are sometimes called the regulator of regulators: they apply common principles concerning competition across all sectors to protect the disciplining effect of competitive constraints, which ensures that sectors function optimally even when regulators are captured or are otherwise rendered ineffective.
The Federal Competition and Consumer Protection Act, 2018 (FCCPA) tries to reflect this understanding of the realities of regulatory intervention. As such, under section 104 of the FCCPA, all provisions of all laws (except the Constitution) relating to competition and consumer protection are subject to the FCCPA. Meanwhile, section 105 explains how to navigate the concurrent (or overlapping) jurisdiction between the FCCPC and sector regulators that already had competition and consumer protection powers. In navigating this concurrent jurisdiction, the FCCPA provides that the FCCPC must have a coordinating and leadership role, and that it must also have precedence over relevant sector regulators.
Nigerian confusion
Since this point, though, we have seen many instances of confusion from Nigeria’s lawmakers about the proper role of a competition authority. Two instances in particular stand out most prominently to me.
The first concerns the Banks and Other Financial Institutions Act, 2020 (BOFIA), which explicitly prevents the FCCPA from applying to any bank or financial institution licensed by the CBN (see Section 65 of the BOFIA). The main implication here is that these institutions have been removed from the FCCPC’s jurisdiction, and now, the CBN—an agency without any competition experience or expertise—is solely responsible for enforcing competition in these sectors.
Very peculiar.
Less than a year later, the Petroleum Industry Act, 2021 (PIA), was passed. It explicitly recognised the importance of the FCCPC and, among other things, provides that the competition and market regulation powers of the Nigerian Midstream and Downstream Petroleum Regulatory Authority are subject to the FCCPA (see Sections 210 & 211 of the PIA). This includes, inter alia, powers to monitor market behaviour, prevent abuses of dominance and restrictive business practices, assess barriers to entry, as well as powers to prevent anti-competitive behaviour in the midstream and downstream petroleum sectors. All of which are subject to the FCCPA.
So, which way, Nigeria? Do we want our competition enforcement to be handled by inexperienced sector regulators? Or, do we want it to be handled by an independent competition authority?
Concluding remarks
For the reasons explained above, how we answer these questions is very important. And not just for the competitiveness of our sectors and the protection of Nigerian consumers, but also for our economic development more generally because competition is integral to economic growth and development.
The importance of these questions are not just for Nigeria, however. African countries in general must pay close attention to how they answer these questions.
Interestingly, we have already seen from South Africa’s experience in its telecoms sector that serious problems can arise (such as, forum shopping and regulatory ambiguity) when boundaries are not clearly demarcated between sector regulators and competition authorities. But that is a story for another day.5
Point here is that our African social, economic, and political context, as well as the broader global context that we have to industrialise in, necessitates that we seriously consider what tools we use to govern the conduct of our sectors.
See, Opata, ‘Looking Towards Europe’ (papers.ssrn.com); and Opata, ‘Collective Dominance Based on Tacit Collusion in Nigerian Telecommunications Markets’ (papers.ssrn.com)
Oyedotun and Pinheiro, ‘What’s the Deal with: Bank Charges aka Cartel 101’ (medium.com)
Adeyemi, ‘MTN Nigeria’s USSD codes now powered by Flutterwave, others, as Banks boycott operator’ (techcabal.com)
David-Arinze, ‘Nigeria’s growing FX cartel under CBN’s watch’ (businessday.ng)
To learn more, you can read these sources: Competition Commission vs Telkom [2009] ZASCA 155 (saflii.org); Thirsk, ‘The Telkom Decision: Dialling in to Concurrent Jurisdiction’ (bowmanslaw.com); Fourie, et al., ‘Regulatory Ambiguity and Policy Uncertainty in South Africa’s Telecommunications Sector’ (econrsa.org); Maleka and Ngwema, ‘Memorandum of Agreement with the Competition Commission to Address Issues of Concurrent Jurisdictions’ (icasa.org.za); and Marais, et al., ‘The New Memorandum Of Agreement Between Competition Commission And ICASA Explained’ (mondaq.com)