Competition and regulation interface in energy, telecommunications and transport in South Africa

Abstract

INTRODUCTION Economic regulation is largely about regulating the natural monopoly parts of value chains and generally involves the regulation of enterprises that are, or were, state-owned. Regulating access to, and pricing of, essential infrastructure, key inputs and bottleneck goods and services that cannot be easily replicated is considered necessary to ensure that fair access is provided and that monopoly prices are not charged (Viscusi, Vernon and Harrington, 1998). Economic regulation is also seen as a mechanism by which significant market failures can be corrected, or entrenched dominant positions kept in check. In certain industries, such as network infrastructure, the private sector will underinvest as the social returns are generally greater than the private returns, given the large externalities generated. In such industries, economic regulation is necessary to ensure sufficient investment. Therefore, the scope of economic regulation is broader than just controlling access and pricing. Dynamic considerations such as the impact on investment decisions, the impact of infrastructure on the development path of the economy, and the creative role of competitive rivalry all need to be part of an effective economic regulatory regime. While economic regulation is often viewed as the control of market power in instances where competition is either not possible or not desirable, competition policy is about regulating the potentially anticompetitive behaviour of dominant players and addressing structural changes through the merger regime or through conditions. In this sense, economic regulation is predominantly ex ante , where the rules of the game are set out upfront, while competition law enforcement is largely ex post , where past anticompetitive conduct is prosecuted after the fact, except for the merger regime where accretions of concentration which could potentially lead to anticompetitive outcomes are curbed ex ante. However, this dichotomy is imprecise, as even economic regulation mainly uses past conduct and data to determine the future course of action and competition policy aims to influence future conduct through changing past undesirable behaviour. The two are even further interrelated – regulation is required for competition to flourish, for instance, to ensure access to essential facilities or inputs.