Volume 19, January-March 2018

REGULETTERA Quarterly Newsletter

Inside this IssueAntitrust Authorities to Merge2

Apple-Google to Face LegalAction ................................. 5

Visa Fights AntitrustCharges .............................. 6

Greenlight to Bayer-MonsantoDeal .................................... 8

UltraTech�s Takeover of BinaniCement ............................... 9

Net Neutrality Repeal inEffect ................................ 13

Cryptocurrency RegulationConsidered ........................ 15

Special Articles

China�s Antitrust RegimeComes of Age� Henny Sender ..................... 3

The Case for Ending Amazon�sDominance� Tim Harford .......................... 7

African Governments take aTough StandAgainst ForeignInvestors� David Pilling ......................12

Curbing the �Curse of Bigness�is a Political Priority� James Kirkup ....................18

What Would a India-US FreeTrade Agreement Look Like?

If India has to realise the imperative of creating new jobs, the country�smanufacturing base needs to be expanded with a clear trade strategy in mind.

The world economy is on the upswing, offering better potential for India�s exports.Faced with a WTO losing its animal spirits, India needs bilateral trade dealswith countries with big markets such as the US.

Speaking at the Davos summit on the global response to increasingprotectionism, Prime Minister Narendra Modi inter alia lamented the fact thatno bilateral or multilateral trade negotiations are going on. Agreements on tradehelp with nil or lower tariffs and predictability of rules.

US Ambassador to India, Ambassador Kenneth Juster expressed his�aspiration� to create a vision for an eventual free trade agreement between thetwo largest democracies of the world.

Juster also said that since thesigning of the civil nuclear deal in 2008,this FTA could be another possiblesignature initiative for furthering tieswith India. While this is understandablya long-shot, in order to create such avision, we need to have a clearroadmap lined up with a number ofconfidence-building measures. At leasttwo of these are important in the current context.

Domestic regulatory environmentThe domestic regulatory environment � standards, intellectual property, public

procurement policies � play an important role in determining international trade.There is need for improvement in the predictability of domestic regulatoryenvironment in the US. Both countries should, therefore, work together to improvetheir domestic regulatory environment in specific areas to boost the confidenceof their companies to trade with each other. Other than enhancing the volume ofbilateral trade, this will also help bilateral investment flows.

Partnership at the multilateral levelIndia and the US working together for institutional reforms of the multilateral

trading system will not only strengthen this body but will also act as a significantconfidence-building measure for enhancing bilateral ties. As articulated byambassador Juster �� the true value of our partnership is that it can betterenable each of us to positively influence global affairs ��

Therefore, we need to understand the underlying thoughts in Juster�s address,which resonates perfectly with the overall thinking of modern-day economicdiplomacy. First, economic diplomacy starts with trade and ends with trade andinvestment. And second, making trade possible and making trade happen aretwo different things.

Through grounded research, extensive stakeholder consultations in bothcountries, including taking into account strategic, security and political aspectsof our bilateral ties and those in the Indo-Pacific region, we need to take specificconfidence-building measures to create a vision for this free trade agreement.

TheWire

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MACRO ISSUESthe Angolan legal system, a system ofdefence, through a law that integratesprinciples and rules of soundcompetition, morality and ethics.

(http://cdn1.portalangop.co.ao,20.03.18)

Reforms toMerger Control RegimeThe Department for Business,

Energy and Industrial Strategy (BEIS)announced that it was introducingreforms to the existing UK mergercontrol regime to strengthen thegovernment�s power to scrutinisemergers on the grounds of nationalsecurity. This is the first significantamendment to the UK merger controlregime since the Enterprise Act 2002came into force.These changes take place in a

context of heightened concern aboutnational security issues, in particularin the high tech sector, the approach ofBrexit, and that fact that similar regimesexist in several other countries.However, there are concerns among

business and practitioners that the newregime should not add to red tape fortransactions, particularly where thereis no likelihood of national securityissues arising.

(www.eversheds-sutherland.com,17.03.18)

Amendments to Competition ActThe process by which the

CompetitionCommission ofSingapore(CCS) gives confidential advice tobusinesses planning to merge has nowbeen codified, under amendments to theCompetition Act passed in theParliament.

Principles on Procedural FairnessThe International Competition

Network (ICN) held its 17th AnnualConference, hosted by the CompetitionCommission of India, onMarch 21-23,2018 inwhichnearly 500delegates frommore than 70 jurisdictions participated.TheAgency EffectivenessWorking

Group produced new recommendationson due process in competition lawenforcement. The FTC-led projectdeveloped Guiding Principles forprocedural fairness, recommendationsfor internal agency practices thatsupport sound decision making, andimplementation tips for good agencyenforcement process.Theworking group introduced new

video training modules on mergerremedies and enforcement cooperationas part of the ICN�s online interactiveeducational centre for competitionauthorities from around the world.

(www.ftc.gov, 23.03.18)

Law to Promote CompetitivenessAngolan Parliament unanimously

approved the Proposed Law onCompetition,which aims to promote thecompetitiveness of various economicagents and the efficiency in theallocation of factors of production anddistribution of goods and services.The Bill establishes the creation of

the Competition RegulatoryAuthority,which shall prevent and punish theactions of economic agents that are notin compliance with the rules andprinciples of competition.The proposed Competition Law

aims to introduce, for the first time in

Chinese Antitrust Authorities toMerge

The Chinese legislature decided on a major restructuring ofgovernmental agencies � with a profound impact on antitrust

enforcement in the country.As far as antitrust is concerned, the focus lies on the new

super market regulator � the State Administration for MarketSupervision (SAMS) which will assume the functions of theexisting State Administration for Industry and Commerce (SAIC),the Administration of Quality Supervision, Inspection andQuarantine (AQSIQ) and the China Food and DrugAdministration (CFDA). It is also tasked to supervise therestructured State Intellectual Property Office (SIPO).

The three existing antitrust enforcement units within theNational Development and Reform Commission (NDRC), SAIC, and the Ministry of Commerce (MOFCOM) will allbe transferred to SAMS, which is anticipated to merge them into a single antitrust bureau.

(www.antitrustconnect.com, 21.03.18)

Senior Minister of State for Tradeand Industry Koh Poh Koon repliedthat the CCS has the power to reviewany merger which may result in asubstantial lessening of competition inanymarket in Singapore.The new Section 55A applies in

situations where information about amerger is not yet in the public domain.In the spirit of confidentiality, the CCSwill base its assessment of suchanticipated mergers on informationprovided by the merging entities.

(TST, 20.03.18)

Protecting Consumer RightsThe Nigerian National Assembly

recently passed the FederalCompetition and Consumer ProtectionBill which is aimed at promoting acompetitive market and protectingconsumer rights.The Bill applies to all businesses

and all commercial activities within, orhaving effect within Nigeria andextends to undertakings in which theFederal, State or Local Government orany of their agencies have a controllingstake.A general fine imposed by this Bill

for offences committed by companiesis an amount up to 10 percent of thecompany�s annual turnover in thepreceding business year. There are alsoindications that the updated version ofthe Bill imposes a tax of 0.5 percent ofafter-tax profits on all companies inNigeria payable to the CompetitionCommission.

(http://pwcnigeria.typepad.com,26.02.18)

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MACRO ISSUES

China�s Antitrust Regime Comes of AgeHenny Sender*

Regulators in Chinawill shortly rulewhether the US$18bn purchase of

Toshiba�s semiconductor chipoperations by a group led by BainCapital andSouthKoreanchipmakerSKHynix violates Chinese antitrust rules.

The decision will mark the latest showof power by Chinese regulators, withcompetition rules increasinglybecoming a key lever for Beijing toinfluence global industries in which itsso-called �national champions� takepart.

The role of national regulators hasbecome a key factor for cross-bordermergers and acquisitions, withsensitivities heightened after theCommittee on Foreign Investment inthe United States, which reviewsnational security implications, movedto block the takeover of Qualcomm bySingapore-based Broadcom. The now-pulled deal would also have gonebefore China�s authorities, which havebecome no less stringent in theirprotection of national interests.

For example, Bayer gained conditionalapproval from China�s CommerceMinistry for its US$62.5bn acquisitionof Monsanto, but only after granting�fair, reasonable and non-discriminatoryaccess� to digital agriculture offeringsin China to Chinese developers of farmmanagement software.

With the next decision likely to beon Toshiba, analysts say that

China�s 10-year-old antitrust regimehas grown to match those in the USand Europe for impact on competition.In doing so, they argue, China will alsohave achieved a second, moreintangible goal to further nationaleconomic and development interests.

With the Toshiba deal, if Beijingdetermines that the transaction has thepotential to lead to arbitrary ordiscriminatory behaviour it can impose

* Chief Correspondent, International Finance, Financial Times, based in Hong Kong. Abridged from an article that appeared inthe Financial Times, on April 04, 2018

�In this case, it is possible thatMofcom was concerned thatGooglewould be able to harmeconomicdevelopment, (by the adverse impacton) Chinese handset manufacturerspost transaction, thereby hampering amajor Chinese industry,� lawyers atJones Day noted in reviewing thatapproval.

However, experts now expect thatantitrust authorities could turn theirsights nearer home given the growingstrength, and in some cases dominance,of tech-based based groups. Disputesand arguments around abuse of marketpower are likely to increasingly involvelocal firms on both sides lobbying toscore points against their rivals.

For example, both the NDRC, themostpowerful of the three entities that dealtwith antitrust issues in the past, andthe Ministry of Commerce arebeginning to look at access toplatforms, such as Alibaba�s powerfulecommerce operations.

Toshiba will be the next test forChina�s antitrust regime, with its

lengthy deliberations having alreadycaused the deal to be delayed. Cynicsnote that now that Toshiba isrecovering, the Chinese leverage on theoutcome of that transaction is likely tohave diminished. Still, antitrustadvisers will scour the eventual rulingfor clues to evolving policy regardingfuture cross-border M&A, whetherChina is a direct participant or not.

conditions on the new owners inexchange for its sign-off.

China�s National People�s Congresspassed a plan to merge China�s threecompetition authorities under a singlebody likely to be called the StateAdministration forMarket Supervision.This was taken by local advisers as asign of further strengthening ofcompetition policy in China since theagency will report directly to the StateCouncil.

Technology has been a major focusfor the Chinese government. In

February 2015, China�s NationalDevelopment andReformCommissionlevied a fine of almost US$975m onQualcomm, the heaviest ever in China.This followed complaints from theMobile China Alliance, whichrepresents the mobile phone industry,and the Internet Society of China.

The NDRC investigation concludedthat Qualcomm abused its dominantposition in regard to certaintechnologies and that some of the UScompany�s practices involvedexcessive pricing in return for accessto patents and the bundling of essentialpatents and less vital ones.

Similarly, the Ministry of Commerce(Mofcom) approval in 2012 ofGoogle�spurchase of Motorola Mobility wasconditional onGoogle�s commitment tolicense its Android operating systemfree of charge and a pledge not todiscriminate among handset makers.

China now rankswith the US andEurope as amajor hurdle forcompaniesconsideringglobal M&A

Financial

Times

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TheCompetitionAmendment Bill(2017) has been published in the

Government Gazette for comments.The Bill identifies five priorities interms of competition lawamendments, with the first prioritybeing the strengthening ofprovisions of the current CompetitionAct that relate to prohibited practicesandmergers. Secondly, the impact ofanti-competitive conduct on smallbusinesses and businesses owned byhistorically disadvantaged persons isgivenmore attention. Thirdly, the Billaddresses market inquiries,strengthening the actions that can betaken to address features andconduct that prevent, restrict ordistort competition.Further, the Bill highlights the

necessity to promote the alignmentof competition-related processes with other public policiesin South Africa. Lastly, alongside their increased powers,the administrative efficacy of the competition regulatoryauthorities is also addressed by the Bill.

Healthcare inquiry finally finalisedThe Competition Commission was expected to release itsreport on the health market inquiry in December. TheCommission launched the inquiry in 2014 to address concernsregarding the functioning of private healthcare in SouthAfrica.Afurther extension to the deadline for the publicationof the Inquiry�s report was published earlier in Decemberand the Commission is anticipated to finalise this inquiry byAugust 31, 2018.

Continuedmarket inquiriesThe Competition Commission has launched several marketinquiries in identified priority sectors in the past few years.It has undertaken inquiries in the grocery retail, privatehealthcare, LPG, data services and public passenger transportsectors, among others. Notably, the proposed amendmentsinclude a provision that will require the Commission tocomplete market inquiries within an 18-month period.

More unique enforcement approachesThe Competition Commission recently released a draftcompetition code of conduct for the automotive sector todeal with concerns regarding anti-competitive conduct aswell as transformation in the sector. The code of conduct isonly binding on its signatories and does not constitute anindustry-wide enforcement guideline.

Eight Trends in Competition Law in 2018Leana Engelbrecht

MACRO ISSUES

* Senior Associate, Competition Practice at Baker McKenzie. Abridged from an article that appeared inwww.bizcommunity.comon January 12, 2018

Stronger crack-down onemployment impact of mergersThe competition authorities of SouthAfrica have always taken theirmandate to protect the public interestas an objective in addition to ensuringthe competitive functioning of SouthAfrican market. It is well known thatany loss of employment as a result ofa transaction will be scrutinised andmerging partieswill only be permittedto engage in merger-relatedretrenchments if it is absolutelynecessary.

Prohibition of mergers that mayresult in co-ordinationThe Competition Commissioncontinues to be inclined to prohibitany merger that, in its view, mayresult in coordination between

competing firms due to consolidation in the industry. Inconducting this part of its merger assessment, theCompetitionCommissionwill consider, inter alia, the numberof players in the market and the number of players that willremain in themarket post-merger, any history of collusion inthe relevant markets and the risk of possible futurecoordination due to the change in the structure of themarket.

International trend - prosecution for not providingaccurate and complete information during mergerapproval processesWhile the Competition Commission has not yet sought toprosecute any firms for not providing complete or accurateinformation in mergers, internationally there is a prevalenttrend of antitrust regulators prosecuting firms on this basis.In SouthAfrica, the Commission�s current modus operandiwhen it is not providedwith complete or accurate informationis to take a diplomatic and collaborative approach and toask for the information and, in rare cases, issue a certificateof incomplete filing.

International trend - the development of the newinnovation theory of harmThe European Commission has developed a non-product-specific innovation theory of harm to justify the prohibitionof mergers. The EU Commission suggests that mergersinvolving innovators in concentrated industries with highbarriers to entry, and in industries with no history ofinnovation outside of the sector, might result in a reductionof the number of new innovative products being developedand should thus be viewed as anti-competitive.

As the South African CompetitionAmendment Bill seeks to givecompetition authorities biggerteeth, so we are likely to seegreater enforcement and an

impact on commercial dealings inthe year to come.

www.bizcom

munity.com

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MACRO ISSUES

Bezeq Abused Telecoms LeadershipIsrael�s anti-competition regulator

charged Bezeq Israel Telecom withabusing its position as the dominantplayer in the country�s telecoms sector,saying itsmonopoly over infrastructuremay harm the supply of telecomsservices.Bezeq is one of two companies

providing telecoms infrastructurenationwide, althoughBezeq is themainplayer. A 2012 reform created awholesale market and required Bezeqto lease its lines to smaller competitors.The authority said the suspected

abuse by Bezeq involved blocking andobstructing competitors whowished todeploy a line-based communicationsnetwork over the Bezeq infrastructure.

(Reuters, 08.03.18)

Breaking up of Safaricom DitchedKenya�s telecoms regulator has

ditched a proposal to break Safaricomup into separate telecoms and financialservices businesses due to itsdominant size.The smaller operators have long

argued that Safaricom enjoys adominant position because it accountsfor 90 percent of revenues in areas suchas voice calls and text messages.Safaricom rejects the claims of

dominance and it has in the pastaccused the regulator of beingpreoccupied by helping its smallerrivals rather than focusing onconsumers. (BD, 03.01.18)

Private Damages DirectiveThe anticipated amendments to the

Bulgarian Protection of CompetitionAct (PCA) implementing Directive2014/104/EU on the rules governingactions for damages for competitionlaw infringements have finally beenpromulgated on January 03, 2018.The new rules concern actions for

damages resulting from violations ofantitrust rules. Damages incurred fromunfair competition and abuses ofstronger bargaining position remainoutside of the scope of theseamendments.As a general rule, applicable to all

breaches of competition rules,

individuals and legal entities that haveincurred damages are entitled tocompensation, even if the victims werenot direct targets of the violation.

(Lexology, 26.01.18)

Excessive Pricing by CD PharmaTheDanishCompetitionAuthority

found thatCDPharma, a pharmaceuticaldistributor, abused its dominantposition on the Danish market for thesale of oxytocin, a peptide hormone usedas medication to facilitate childbirth.CD Pharma had allegedly increased

by 2,000 percent the price forSyntocinon, which contains oxytocin,after Amgros, a wholesale buyer forhospitals, had turned to it because itcould no longer rely on parallel traderOrifarm, its established supplier ofoxytocin, whose own sources of supplyhad dried up.As the exclusive distributor for

DenmarkofSyntocinon,CDPharmahadno sourcing problems. CD Pharma hadnot been able to offer an objectivejustification for the price increase.

(www.en.kfst.dk, 31.01.18)

Broadcaster Fined for AbusebeIN Media Group rejects the

US$22.7mn fine set by the EgyptianCompetition Authority and upheld bythe Cairo economic court.The Egyptian Competition

Authority (ECA) argues the Qatari

company had abused its position whentransmitting its coverage of the mainAfrican football competitions. Ratherthan transmit the coverage on Egypt�sNilesat satellite, viewers were requiredto point their dishes at Qatar�s SuhailSat satellite.beIN said the �unfounded

allegations� have no basis incompetition law and the regulator wasacting without authority.

(www.broadbandtvnews.com, 15.03.18)

MyCC�s First Abuse Case UpheldTheMalaysiaCompetitionAppeal

Tribunal (CAT) upheld the infringementdecision by the Malaysia CompetitionCommission (MyCC) in June 2016,which marked MyCC�s first abuse ofdominance case since its establishmentin2012.The CAT upheldMyCC�s financial

penalty of £420,000 and furtherincreased this by £760,000 taking thetotal fine to £1.2mn. The increasedpenalty reflects the accumulated dailypenalty for the continuation of theinfringing conduct in the period fromthe date ofMyCC�s decision to the dateof the CAT�s judgment.InMalaysia, online foreignworkers

permit renewal applications can onlybe processed if the foreign worker�semployer purchases three mandatoryinsurance policies.

(Lexology, 17.01.18)

ABUSEOFDOMINANCE

Apple-Google to Face Legal Action

France is taking Google and Apple to court over �abusive� app developerpractices and could impose millions of euros in penalties. Finance Minister

Bruno Le Maire expected the Paris commercial court to impose sanctions thatwould likely cost Googleand Apple millions ofeuros.

The Ministerdenounced theprices andcontractual termsimposed by the Internetgiants on the nation�sdevelopers. Mairereiterated that hisgovernment was workingto establish internationalrules obliging digitalgiants to pay taxes wherever they operate.

They were expected to reach an agreement by the end of 2018 and apply itacross Europe at the beginning of 2019, he added. (Reuters, 14.03.18)

www.theindependentbd.com

6No.1, 2018

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Coffee Producer Face PenaltiesThe South African Competition

Tribunal announced that Secret RiverTrading (trading as Caffeluxe) hadadmitted to fixing the prices of coffeecapsules to retail customers.The nation�s Competition

Commission said it had emerged thatCaffeluxe threatened to not supply towholesaler Global Coffee after adiscount it made to Checkers Stores in2014, if Global Coffee did not increaseits price to the agreed shelf price.The Commission said, �In terms of

an agreement in effect between 2013and May 2014, Global Coffee wasprecluded from undercutting Caffeluxewhen selling coffee capsules to groceryretail outlets.� Caffeluxe will pay anadministrative penalty of US$63,789,payable in tranches. (ANA, 25.03.18)

Honda Faces CCI ProbeThe Competition Commission of

India (CCI) ordered an investigationagainst HondaMotorcycle and ScooterIndia (HMSI) for various anti-competitive provisions in its agreementwith dealers.It was alleged that HMSI had

perpetuated tie-in arrangements,imposed resale price maintenance andmaintained a discount controlmechanism through the standard formof dealership agreement.After finding prima-facie evidence

of competition norm violations, thewatchdog has decided to carry out adetailed probe against the company.

(ET, 15.03.18)

MICRO ISSUESRailroad Investigation ClosedMexico�s antitrust watchdog has

closed an investigation into a possiblelack of competition in interconnectionservices among the country�s principalrailroad operators.The investigation, carried out by

the Federal Commission for EconomicCompetition (Cofece), investigatedwhether Groupo Mexico, and KansasCity Southern ofMexico who controls73.3 percent of the country�s railroads,could potentially set prices withoutcompetitors having the ability tonegotiate rates.�Themarket definition proposed by

the authority in its preliminary ruling,and based on which it concluded thatthere were no conditions ofcompetition, is not duly accredited andsupported in the file,� said Cofece inits resolution. (WSJ, 08.03.18)

Takata Charged with Price FixingSouth African competition

watchdog charged Takata Corp withprice fixing in another blow to theJapanese auto safety products makercurrently in the throes of a massiveairbag scandal.The Competition Commission said

Takata worked with other firms to fixprices, divide themarket and collude intheir bidding for four different seat beltsand airbags contracts with threeautomakers.The case, which has been referred

to the Competition Tribunal forprosecution, comes almost a year afterTakata launched a recall of about 125million vehiclesworldwide due to faultyairbags. (Reuters, 14.03.18)

Aerial Imaging Cos. Under LensAccording to South Korea�s

antitrust watchdog, it has levied acombined US$10.1mn in fines on 14aerial imaging companies for allegedlyrigging bids for mapping projects.Geospatial InformationTechnology

Co. and 13 others are accused ofcolluding to win 37 bids placed by theNational Geographic InformationInstitute (NGII) to take aerial shots,which were used to make maps,according to the Korean Fair TradeCommission (KFTC). The bids weremade between 2009 and 2013.The KFTC agreed to split the bids

and help each other win theirrespective contracts, with otherssupposedly taking part in the process,with the aimofkeepingbidpriceswithina set range. (CPI, 18.03.18)

Banks Violated Antitrust LawsJapanese regulators said Bank of

America Merrill Lynch and DeutscheBank had violated antitrust laws in thealleged fixing of bond prices, reportedReuters.Japan�s Fair Trade Commission

(JFTC) found that London-basedtraders for the banks in 2012 hadexchanged information and agreed onprices on US-dollar bonds issued bythe European Investment Bank.Tsuyoshi Okumura, a senior

investigator for the JFTC�sInternational Antitrust InvestigationBureau, said this violated Japan�s anti-monopoly laws because a Japanesebank, Bank of Tokyo Mitsubishi UFJ,was the purchaser of the bonds.

(Reuters, 29.03.18)

PRICE FIXINGPRICE FIXINGPRICE FIXINGPRICE FIXINGPRICE FIXING

Visa Fights Antitrust Charges

Visa is fighting back against accusations that it chargestourists excessive fees when they use their cards in the

European Union. Visa will present its case against theantitrust charges in front of senior European Commissionofficials and national competition officials.

If the company loses the case, it could face a substantialfine � up to 10 percent of its global turnover. Six monthsago, the EC said that the fees charged to retailers who acceptVisa cards issued outside the EU could lead to higher pricesfor consumer goods and services.

With the EU looking to cut these costs and improvecross-border trade, the case against Visa is a crucial one. Inaddition, most retailers see these fees as a hidden cost for customers. (CPI, 27.02.18)

www.PYMNTS.com

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It should not be difficult to loveAmazon. To consumers,it offers choice and convenience. Countless internetventures have relied on its cheap, flexible cloud computingservices to start and scale up. Amazon makes titans suchasWalmart work hard for their revenue, offers a shoppingsearch engine that is Google�s only serious rival, raises thebar for television networks and sells tablet computers at aprice to makeApple loyalists stop and think.

Amazon is also giving the US economywhat it needs. Twoeconomists, GermánGutiérrez and Thomas Philippon, haveargued that corporate America is underinvesting. Onereason is that companies are impatiently funnelling cashto investors and executives rather than take a long-termview.

If that is a worrisome state of affairs � and it should be �then Amazon is the shining counterexample. The onlineretailer�s strategy is driven not by short-term profit but byinvestment, innovation and growth. If only there were afewmore companies likeAmazon, capitalismwould be in ahappier spot. But there�s the rub: there are not morecompanies like it. It�s unique, and an increasingly terrifyingforce in online commerce. Should regulators act? If so,how?

It�s worth first disposing of a bad argument: that Amazonmust be challenged because it makes life miserable for itscompetitors, some of which are plucky mom-and-popoperations. However emotionally appealing this mightseem, it should not be the business of regulators to propup such businesses.

Regulators have a tendency to slip into the role ofprotecting incumbents with surprising ease. Marc

Levinson�s history of container shipping, The Box,describes Malcom McLean � the entrepreneur behindcontainerisation, a risk-taking visionary reminiscent ofAmazon�s founder Jeff Bezos. When McLean tried toexpand his operations, one of his largest obstacles wasthe Interstate Commerce Commission in the US, whichregulated US railways from 1887 and interstate truckingfrom 1935. It�s worth first disposing of a bad argument:that Amazon must be challenged because it makes lifemiserable for its competitors, some of which are pluckymom-and-pop operations

The ICC, writes Levinson, had to approve each new route,every new commodity and any new price schedule. WhenMcLean wanted to start a trucking route at a low price, hehad to hire lawyers and argue his case at the ICC, while his

competitors protested bitterly � �unfair and destructive�,said the railways. He did not always get his way.

Antitrust authorities should not be in the business ofmaking life easy for incumbents. What, then, should

they do? There are two schools of thought. One is to focuson consumers� interest in quality, variety and price. Thishas been the standard approach in US antitrust policy forseveral decades. Since Amazon makes slim profits andcharges low prices, it raises few antitrust questions.

The narrowing in antitrust thinking is described by LinaKhan in amuch-read article, �Amazon�sAntitrust Paradox�.Khan berates modern antitrust thinking for its �hostility tofalse positives�, arguing that it has become incapable ofsaying anything insightful about modern tech companies.

Unlike Khan, I share modern antitrust�s hostility to falsepositives; there is a real cost to cumbersome andunnecessary meddling in a dynamic and rapidly evolvingmarketplace. US president Donald Trump�s history ofpublicly attacking Mr Bezos is worth pondering too: do wereally want the US government to have more discretion asto who is targeted, and why?

Antitrust authorities face a difficult balancing act.RegulateAmazon and youmay snuff out the innovation

that we all say we want more of. Punish it for success andyou send a strange message to entrepreneurs and investors.Ignore it and you risk leaving vital services in the hands ofan invincible monopolist.

There are no easy options, but it is time to look for a way tosplit Amazon into two independent companies, each withthe strength to grow and invest. If Amazon is such awonderful company, wouldn�t twoAmazons be even better?

MICRO ISSUES

The Case for Ending Amazon�s DominanceTim Harford*

* English Economist and Journalist. Abridged from an article that appeared in the Financial Times, on January 20, 2018

Antitrust authorities should not be making life easy for incumbents

www.caglecartoons.com

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RESTRUCTURING

Foxconn Snaps up BelkinThe Taiwanese company known

best for manufacturing iPhones,Foxconn, will soon be the companybehind some of the best known routersand other computer accessories. Asubsidiary of Foxconn, FoxconnInterconnect Technology wouldacquire Belkin, which also owns thebrands Linksys and Wemo.Belkin, based in California, has

been around for 35 years and is knowntoday for creating an array of computerand phone accessories, includingwireless chargers, laptop docks, andphone cases. Belkin purchasedLinksys, which is well known for itshome routers, in 2013. And it�s beenrunning a smart home system calledWemo for more than five years now.Foxconn will pay $866 million in

cash to acquire Belkin. It has pledgedto build a US$10bn factory inWisconsin, which could help it stayon the administration�s good side.

(FT, 26.03.18)

Consumer Healthcare VentureGlaxoSmithKline is buying

Novartis out of their consumerhealthcare joint venture for US$13bn,taking full control of productsincluding Sensodyne toothpaste,Panadol headache tablets, muscle gelVoltaren, and Nicotinell patches.Consumer remedies sold over the

counter have lower margins thanprescription drugs, but they aretypically very well-known and durablebrands with loyal customers.The proposed transaction

addresses one of our key capitalallocation priorities andwill allowGSKshareholders to capture the full value

of one of the world�s leading consumerhealthcare businesses. (WSJ, 27.03.18)

Bristol-Myers Ink Cancer Drug DealBristol-Myers Squibb will pay

Nektar Therapeutics US$1bn todevelop a cancer immunotherapytreatment � one of the largest dealsever inked for a single drug�sdevelopment.Nektar will test its experimental

drug, NKTR-214, in combination withBristol-Myers� best-selling cancerdrugs Opdivo and Yervoy. Researchwill focus on 20 cancer indicationsacross nine different tumor types,ranging from melanoma to lungcancers.Through the deal, Nektar is eligible

to achieve an additional US$1.78bn inregulatory and sales milestonepayments from Bristol-Myers. If theFDA approves NKTR-214, Nektar andBristol-Myers would split globalprofits by 65 and 35 percent,respectively.(www.beckershospitalreview.com, 14.02.18)

General Dynamics to Acquire CSRAGeneral Dynamics and entered into

a definitive agreement under whichGeneral Dynamics will acquire alloutstanding shares of CSRA forUS$40.75 in cash. The transaction isvalued at US$9.6bn, including theassumption ofUS$2.8bn inCSRAdebt.The acquisition of CSRA

represents a significant strategic stepin expanding the capabilities andcustomer base of GDIT. CSRA�smanagement team has created anoutstanding provider of innovative,next-generation IT solutions withindustry-leading margins.

The combination enables GDIT togrow revenue and profits at anaccelerated rate. It will allow us todeliver evenmore innovative, leading-edge solutions to our customers.

(FT, 13.02.18)

Vodafone Eyes Liberty GlobalVodafone, one of the world�s

largest mobile operators, is in talks tobuy large parts of John Malone�sEuropean cable group Liberty Globalin a deal thatmay exceed 14bn in valueand bolster the UK group�s footprintacross the continent.Telecom companies are looking to

bundlemobile and broadband services,and a combination would allowVodafone�s mobile businesses tocompliment Liberty�s strong fixed-lineoperations across Europe.Vodafone owns wireless networks

throughout Europe, including Italy,Germany and the UK, where it is thecountry�s second-largest provider.

(FT, 02.02.18)

Banking & Insurance to CombineChina will merge its banking and

insurance regulators in a long-awaitedmove to streamline and tightenoversight of the financial system in theworld�s second-biggest economy.China will also transfer some of the

banking and insurance regulators�roles to the central bank. Its financialsystem has become increasingly toughto regulate due to its sheer breadth.It has grown rapidly in size and

complexity, emerging as one of theworld�s largest with financial assets atnearly 470 percent of gross domesticproduct, according to the InternationalMonetary Fund. (Reuters, 13.03.18)

Greenlight to Bayer-Monsanto Deal

Bayer has received the green light from the EU to buyMonsanto, after promising to sell off substantial parts of its

business, clearing a major hurdle to the last of a trio of mega-mergers consolidating the global agrochemical industry.

The German company promised to sell some of its herbicideand seeds businesses to rival BASF to alleviate the watchdog�sconcerns that the tie up with the giant American agribusinesswould cut competition in the EU and lead to higher prices,lower quality, a cut in choice and less product innovation. Bayerwill also licence BASF its digital farming portfolio.

(FT, 21.03.18)

www.cartoonm

ovement.com

9No.1, 2018

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RESTRUCTURINGNod for Airtel-Tigo RwandaTelecom operator BhartiAirtel Ltd

received regulatory approval to acquireTigo Rwanda � a subsidiary ofLuxembourg-based MillicomInternational Cellular SA.With this acquisition, Airtel

Rwanda operationswill becomeEbitdapositive (operating profit), makingwhole of Airtel�s Africa businessprofitable at the operations level.The merged entity will have the

largest customer base in Rwanda with5.9 million subscribers. The combinednetworks of the two companies willserve customers with voice and dataservices, global roaming and mobilebanking services and also haveRwanda�s largest sales anddistribution network. Airtel hasoperations across 16 countries, whichinclude 14 inAfrica.

(ET, 23.01.18)

Broadcom to End Bid for QualcommSingapore-based Broadcom Ltd is

planning to scrap its bid for QualcommInc after US President Donald Trumpblocked the chipmaker�s proposedacquisition on national securitygrounds.Broadcom will continue with its

plan to redomicile to the US, a movethat will cost it about US$500mn a yearunder a higher tax rate.Being based in the US as opposed

to Singapore will allow Broadcom tomake what it believes will beacquisitions of US companies that willnot fall within the jurisdiction of theCommittee on Foreign Investment inthe US, which scrutinises deals forpotential national security concerns.

(Reuters, 13.03.18)

India Saw Record M&A dealsCorporate India announcedmerger

and acquisition (M&A) deals worthUS$1,893mn in February 2018,registering a 40 percent increase invalue terms over the year-ago periodwas driven by big-ticket transactions.According to assurance, tax and

advisory firm Grant Thornton, therewere 40 M&A transactions worthUS$1,893mn in February, while in thecorresponding period a year ago therewere 32 such dealsworthUS$1,354mn.

This increase in M&A deal valuein February was driven by big-ticketconsolidation that saw four dealsvalued over US$100mn contributing to79 percent of the total M&A values.Energy, telecom, banking & IT

sectors dominated the deal activity interms of deal values capturing 92percent, while start-ups sectordominated the deal volumes with 25percent. (IE, 16.03.18)

Luxottica-Essilor Tie-upEuropean and US competition

regulators approved the US$58bnmerger of Italian eyewear makerLuxottica and French lensmanufacturer Essilor, sending sharesin both companies higher.The proposed tie-up between

Luxottica, which owns brandsincluding Ray-Ban and Oakley, andEssilor, which sells lenses under theVarilux brand, is aimed at takingadvantage of expected strong demandfor prescription spectacles andsunglasses as populations ageglobally.Rivals and some opticians have

voiced concern that the merged entitymight persuade opticians to buy eyewear and lenses as a package.

(Reuters, 01.03.18)

Creating Global Leader in RailThemaker of France�s iconic TGV

trains Alstom and German industrialleader Siemens signed an agreementon creating a global leader in the rail

industry.The Business Combination

Agreement (BCA) sets the terms ofcombining Alstom with Siemens�mobility business, including its railtraction drive business, after the twofirms unveiled their plans in 2017.Siemens will control 50 percent of

Alstom immediately butwill be blockedfrom taking a bigger than 50.5 percentstake for the four coming years.The merger will create the world�s

top firm for rail signalisation and thenumber two for building traincarriages, which should help the firmsface rising Chinese competition. It isexpected to be completed by the endof2018. (CPI, 25.03.18)

Axa Acquires XL GroupInsurance giant Axa is to splash

out US$15.3bn on acquiring Bermuda-based XL Group, which specialises inproperty and casualty claims.The combination will create the

biggest property and casualtycommercial lines insurer based on grosswritten premiums, with total revenuesof 48bn.XL has a strong presence in North

America, Europe, Lloyd�s and Asia-Pacific and generated US$15bn ofgross written premiums in 2017.This transaction is a unique

strategic opportunity forAXA to shiftits business profile from predominantlylife and savings business topredominantly property and casualtybusiness. (www.independent.ie, 05.03.18)

UltraTech�s Takeover of Binani Cement

UltraTech Cement has received Competition Commission of India (CCI)approval to acquire Binani Cement. The company was declared the

second-highest bidder, behind Dalmia Bharat Cement, in the bidding for thestressed asset.

The Aditya Birla Group claimedthat a lot of apprehensions had beenraised by the resolution professionalon it being able to obtain CCIclearance on its bid for BinaniCement, whereas the regulatorhad cleared the deal.

UltraTech was rated the H2(second highest) bidder instead

of H1 (highest bidder), for thisreason. The CCI clearance validates UltraTech�s contention that they werewrongly and unjustifiably rated H2 instead of H1. (ET, 29.03.18)

TheFinancialExpress

10No.1, 2018

EGULETTERR

RESTRUCTURING

It is rather amazing that two huge UScompanies looking to cut anUS$85bn merger are looking likeunderdogs. But as AT&T and TimeWarner go head to head with the USgovernment over the legality of theirproposed tie-up, that is precisely whatthey appear to be.

Makan Delrahim, the Department ofJustice�s antitrust head, plans to arguethat telecoms powerhouse AT&Tshould be prevented from buyingmedia company TimeWarner becausethe two companies together will havemonopoly powers that would result inhigher cable prices for Americanconsumers.

The corporations themselves, ofcourse, argue the opposite. They claimthe merger is necessary to stave offcompetitive pressure from bigger fish� Google, Facebook, Amazon andNetflix.

Whichever way the AT&T-TimeWarner case goes, it will do little

to solve these problems, because it willnot address the main issue: UScompetition policy today isfundamentally unsuited to the digitaleconomy.

It is time to rethink antitrust policy andthe definition not only of consumerwelfare, but of welfare itself.

* Global Business Columnist and an Associate Editor at the Financial Times. Abridged from an article that appeared in the FinancialTimes, on March 19, 2018

Mergers of Old-Media Titans Miss the PointRana Foroohar*

corporate power. That is a problem forpeople like me who believe thatmonopoly power is an obstacle toshared economic growth.

It is time to rethink antitrust policy andthe definition not only of consumerwelfare, but of welfare itself.

The conversation is alreadybrewing, thanks to people like

Barry Lynn, a former policy wonk atthe NewAmerica Foundation, a think-tank.He argues for a return to an earlierapproach to competition policy. Beforethe 1980s, US antitrust law held thattoomuch economic power created toomuch political power � and that wasinherently bad for consumers andsociety. It allowed big companies tocreate an uneven political playingfield.

This view implies a much broadernotion of economic welfare, shiftingthe lens from the individual to theentire ecosystem.Walmart orAmazon,for example, might lower prices forconsumers, but their size also allowsthem to squeeze their supply chains.That in turn could result in fewer start-ups and thus less job creation.

That definition of welfare is harderto quantify, but it is already used

by the US Federal Reserve, whichunder the Community ReinvestmentAct of 1977 is obliged to look after theoverall economic development ofcommunities. Since 2008, the Boston,Chicago and San Francisco Feds haveall vigorously supported this goal,seeking to connect borrowers andlenders and support entrepreneurs.

While the justice department is rightto focus on corporate power, theTrump administration is picking thewrong target. Mergers between oldmedia giants are beside the point in adigital world.

It is the monopolypower of big techthat policymakersshould worryabout

For decades now, American antitrustpolicy has centred around notions of�consumer welfare�. The key questionabout any given merger is whether itwill make things better or worse forconsumers. The definition of �better�has traditionally been defined bypricing. If consumer costs look likelyto go down, a merger will go through.

And yet the digital world is one inwhich data, not dollars, are thecurrency. Consumers receive servicessuch as search, e-commerce and videostreaming cheaply, or even for free.

USdigital advertising surpassed TVadvertising in 2016,making it even

tougher for companies likeTimeWarnerto keep subscription fees low. Googleand Facebook took 84 percent of thatdigital advertisingmarket last year. Nowonder more than 22million US cablecustomers have cut the cord as of 2017�up33 percent from2016. If someonehas monopoly power in this world, it isnot the legacy media players.

The tech platform companies argue thatnone of this is a problem, because theresult is great for customers: theyreceive seamlessly delivered, cheap,high-quality programming.

Applying this definition of consumerwelfare to our digital economy willensure more, not less, concentration of

TheFinancialTimes

11No.1, 2018

EGULETTERR

CORPORATE ISSUES

* Head of Stewardship, Asset Manager Sarasin & Partners** Author of �Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms�

Yes � Separating audit from consultingwould prevent conflicts of interest

Natasha Landell-Mills*

Auditors are failing investors. The situation has becomeso dire that head of the UK�s accounting watchdog

said it was time to consider forcing audit firms to divest theirsubstantial and lucrative consulting work.

This shift from the Financial Reporting Council, whichopposed the idea six years ago, is welcome. But breaking upthe Big Four accountancy firms can only be a first step.Lasting reform depends on auditors working forshareholders, not management.

Auditors are supposed to underpin trust in financial markets.Major stockmarkets require listed companies to hire auditorsto verify their accounts, providing reassurance toshareholders that material matters have been inspected andtheir capital is protected. In the UK, auditors must certifythat the published numbers give a �true and fair view� ofcircumstances and income; thatthey have been prepared inaccordance with accountingstandards; and that they complywith company law.

But audit is failing to meetinvestors� expectations. Thedominance of the Big Four inlarge company audits is anotherconcern: when large andpowerful firms are able to crowdout high quality competitors, the damage is lasting. Takentogether, these failures have resulted in a dysfunctional auditmarket that needs a broad revamp.

Auditors should provide meaningful disclosures about therisks they uncover. They need to verify that companyaccounts do not overstate performance and capital and thatunrealised profits are disclosed.

Engagement between shareholders and audit committeesand auditors should become the norm, not the exception.Shareholders need to scrutinise accounting and auditperformance, and use their votes to remove auditors or auditcommittee directors where performance is substandard.

Finally, the accounting watchdogs must be far more robuston audit quality and impose meaningful sanctions. Even thebest intentioned will struggle against a broken system.

No � Lopping off advisory serviceswould hurt performance

Jim Peterson**

The recent spate of large-scale corporate accountingscandals is deeply worrying and raises a familiar

question: �Where were the auditors?� But the correctanswer does not involve breaking up the four professionalservices firms that dominate auditing, writes Jim Peterson.

Forcing Deloitte, EY, KPMG and PwC to shed their non-audit businesses would neither add competition nor boostsmaller competitors. Lopping off the Big Four�s consultingand advisory services would degrade their performance,weaken them financially, and hamper their ability to meetthe needs of their clients and the capital markets.

Although theUK regulator is raising competition concerns,the root problem is global. The growth of the Big Four,operating in more than 100 countries, reflects theirmultinational clients� needs for breadth of geographic

presence and specialisedindustry expertise.

The suggestion thatcompetition and choice wouldbe increased by splitting up theBig Four is doubly unrealistic.Forcing them to spin off theirnon-auditing business wouldnot create any new auditors.

A split by industry sectorwouldbe no better. Each sector would still be served by just fourbig firms. If each firm were split in half, the two smallerfirms would struggle to amass the expertise, personnel andcapital necessary to provide the level of service that bigcompanies expect.

The enthusiasm for cutting up the Big Four also fails torecognise how the world is changing. The rise of artificialintelligence, blockchain and robotics is reshaping the wayinformation is gathered and verified. Auditors will needmore � rather than less � expertise.

Auditors should be held accountable for their mistakes,but these issues are too complex for simplistic solutions.Rather than a quick amputation, we need a full-scale re-engineering of the current model with all of its parts.

Should the Big Four Accountancy Firms Be Split Up?Two experts debate how best to reform auditing

The Financial Times

12No.1, 2018

EGULETTERR

INVESTMENT & DISINVESTMENT

In February 2018, police and bailiffs entered the Gabonoffices of Veolia, a French water and energy group, withnews that the government was seizing the company�s assets.Veolia reacted angrily, saying the expropriation wouldmakemultinational companies think twice about long-terminvestments inAfrica.

Afew days later, 2,500miles across the continent, Djibouti�spresident announced that his government was terminatingthe concession of DPWorld, a Dubai ports operator, to runthe Doraleh container terminal. DP World, too, cried�seizure�, saying it would sue Djibouti for damages.

These are not entirely isolated incidents. In several countries,African governments have been taking a tougher standtowards foreign investors. Tanzania�s president, JohnMagufuli, has launched a broadside against Acacia Miningof the UK, accusing it of ripping off the country by routinelyunder-declaring the amount of gold it exports.

More broadly, he is demanding that companies smeltand refine ore in Tanzania, something the British

company says makes no economic sense.Acacia reported aUS$700m loss in 2017 after writing down the value of itsTanzanian assets. It vehemently denies the accusation ofunder-reporting ore concentrate and is now consideringselling out to a Chinese competitor.

In the Democratic Republic of Congo, not an easy place todo business at the best of times, the government isdetermined to squeeze more out of mining companies.Emboldened by soaring global demand for cobalt, an essential

component of electric car batteries of which Congo is themajor supplier, it wants to raise royalties on the rawmaterial.

Whenever sovereign governments sign contracts withprivate operators there is potential for discord. Public-privatepartnerships are hard to get right even in advanced andwell-regulated countries such as the UK, as the recentcollapse of Carillion, a construction company, shows. Howmuch harder, then, in nations where the institutionalframework is weak and accountability often lacking.

There is nothingwrongwith governments seeking a betterdeal. It is certainly right to strive to keep more value-

added in the country and jettison the purely extractiverelationships that too often persist. Nana Akufo-Addo,Ghana�s president, spoke for a continent when he toldEmmanuel Macron, his French counterpart, that Africancountries wanted to rely on their own wealth � not foreignaid � to lift themselves from poverty. That means keepingmore of it in the country in the first place, a goal that demandsbetter policies, less corruption, and striking savvier dealswith foreign investors.

None of this is to say that thelatest disputes are clear-cut. InGabon, there has been a long-held conviction that Veoliaoperates high-handedly andimplements lowerenvironmental standards thanit would do at home. Veoliastrongly denies the accusation, saying its water provisionmeets World Health Organization standards and surpassesthose required by Gabon. The government, it intimates, isplaying populist politics by attacking an easy French target.

Outsourcing contracts pose problems for both sides.Strike too generous a deal and the public will rightly

complain, particularly if the service is bad or tariffs high.Too stringent a deal can have the opposite effect, drivingthe contractor out of the country or even out of business. Insome cases, the state may be acting justly. In others, it maysimply be trying it on. For foreign companies, there is a ruleof thumb. Even in weak jurisdictions, they need to strike afair deal.Anything less and it will come back to bite them.

African Governments take aTough Stand Against Foreign Investors

David Pilling*

Public-privatepartnerships areproving to be arecipe for discord

* Asia Editor, Financial Times. Abridged from an article that appeared in the Financial Times on March 08, 2018

TheFinancialTimes

13No.1, 2018

EGULETTERR

SECTORAL REGULATIONLiberalising Aviation in AfricaNearly two dozenAfrican countries

launched a single aviation market, apotential boon for the industry in aregion where it is hampered bygovernment protectionism, high taxesand stringent regulation.The Single African Air Transport

Market would facilitate the freemovement of flights between Africancountries by liberalising frequencies,fares and capacities, breaking downbarriers that have in the past increasedcosts.It is an updated version of the

Yamoussoukro Decision that wassigned in 1999 to open up intra-Africanaviation routes. That agreement failedand compared to other continents airtravel inAfrica is expensive, restrictedand dependent on bilateral deals.

(Reuters, 29.01.18)

Ofcom to Begin 5G AuctionTheUK�s telecom regulatorOfcom

has confirmed plans to start its 4G and5G wireless spectrum auction. Theauctionwill seeOfcom offer up 40Mhzof frequency in the 2.3GHzband (whichwill be immediately available for 4Gservices) and 150MHz in the 3.5GHzband (which will be used for 5Gservices).Ofcom has confirmed that the

auction will run for �a number ofweeks�, after which it will be able toconfirm which of the six biddingoperators � BT-owned EE, O2, Three,Vodafone Hull-based ISP Connexinand Airspan Spectrum Holdings �have been successful. (CPI, 13.03.18)

Renewable Energy SubsidiesThe Minister of Economic Affairs

and Climate of Netherlandsannounced that the new governmenthas reserved 12bn to grant subsidiesin 2018 for the production of renewableenergy under the Renewable EnergyGrant Scheme (SDE+).The SDE+ subsidies, which will be

made available to applicants in two 6billion tranches, aim to accelerate thedevelopment and use of sustainableenergy production technologies.

The SDE+ programme is one of thevarious measures taken by the newgovernment to meet its ambitiousclimate goals. These are set out in thegovernment�s coalition agreement for2017 to 2021, titled Confidence in theFuture, under which the Netherlandsaims to have reduced its CO2 emissionsby no less than 49 percent by 2030.

(ILO, 12.03.18)

Medical Malpractice Law EnactedThe Law on rules regarding the

safety of treatments and patients andmedical malpractice was approved inItaly onMarch 17 2017.In addition to setting out the legal

scope for the safety of medicaltreatments and patients, the lawprovides the scope for imposing aneffective risk management policy onhealthcare personnel and prescribesrisk allocation standards in the case ofdamages arising from medicaltreatments.The law aims to clarify liability for

healthcare organisations andprofessionals, with the exception ofcases where agreements are reachedwith patients directly; and build anefficient protection system for at-risk

patients through the introduction ofeffective and mandatory insurancepolicies. (ILO, 21.02.18)

Major Port Authorities BillThe Indian Cabinet approved

amendments to the Major PortAuthorities Bill, 2016whichwill allowthe port authorities to create specificmaster plan for development ofinfrastructure.The Cabinet chaired by Prime

Minister NarendraModi has approvedthe incorporation of the officialamendments to the bill, which ispending in Parliament. TheAmendments are based on therecommendations of the Department-related Parliamentary StandingCommittee, the release said.The board of each major port, as

per the proposed amendment, would�be entitled to create specific masterplan in respect of any development orinfrastructure established or proposedto be established within the port limitsand the land appurtenant thereto andsuch master plan shall be independentof any local or state governmentregulations of any authoritywhatsoever�. (IE, 08.02.18)

Net Neutrality Repeal in Effect

The US Federal Communication Commission (FCC) officially repealed thelandmark Obama-era �net neutrality� rules by publishing the order to the

National Register, the official journal of US federal government regulations.The reversal is a

hallmark victory for FCCChairman Ajit Pai, whosetenure has seen himstrongly advocate forreduced regulation inlockstep with PresidentTrump.

The Republican-ledFCC voted 3-2 to overturnrules barring serviceproviders from blocking,slowing access to orcharging more for certain content.

The White House Office of Management and Budget still must sign offon some aspects of the FCC reversal before it takes legal effect.

(Reuters, 22.02.18)

14No.1, 2018

EGULETTERR

SECTORAL REGULATION

When Jeremy Corbyn first floatedthe idea of renationalising

Britain�s privatised public servicesduring his campaign for the Labourparty leadership three years ago, it wasdismissed as the eccentric mumblingsof a paleo-socialist ideologue.

The coal, electricity and water boardshad a dismal record of under-investment and poor performancewhenpreviously in public hands.

The first fight a Labour governmentwould face involves compensation.Notevery nationalisationwould require thegovernment to pay off privateinvestors. For instance, the trainoperating companies, which operatepassenger services on the UK�s 20 railfranchises, enjoy those rights for alimited term under contract. Agovernment could just wait for thefranchises to fall due, and scoop theoperations back into public hands.

The same may also apply to privatefinance contracts near the ends of

their terms, and which Labour has saidmay be allowed to run their course.

But industries such as water andelectricity, where licences are eitherlong term or perpetual, would involvecompulsory takeovers, for whichcompensation would need to be paidupfront. Here the debate revolvesaroundwhat investors could expect fortheir shares.

so long as there was an electoralmandate for action.

Clearly, if nationalised utilitiesperformed much worse, then the cost-of-capital advantage would dissipate.Profitswould fall and, if the policyweresufficiently large and mishandled,public borrowing costs could go up,too.

Yet the idea of superior privatesector efficiency also has its

critics. �Those who defendprivatisation make claims about thesuperior efficiency of private overpublic ownershipmodels,� says DieterHelm, a Professor of Energy Policy atOxford University and a longstandingAnalyst of British utilities. However,he argues that many of these restmainly on assertion, rather than hardevidence or fact.

Britain�s railways are partlyrenationalised already with theinfrastructure operator Network Rail,which controls 2,500 stations as wellas tracks, tunnels and level crossings,already in the hands of the publicsector and its £46bn debt on thegovernment balance sheet.

Prof Helm argues that both sides ofthe debate are too hung up on the

question of ownership. Just asMargaret Thatcher thought privatecapital and competitionwould promoteefficiency in underperforming publicassets, so the left believes publicspirited officials can replace what itsees as private greed.

Ultimately Prof Helm argues that whatis needed is strong long-terminvestment and management, backedby sensible regulation, regardless ofwhether the family silver is in public orprivate hands. �Neither nationalisationnor privatisation, nor monopoly norcompetition, solves any of these,� hesays.

* City Editor and **Reporter, Financial Times respectively. Abridged from an article that appeared in the Financial Times onFebruary 26, 2018

Returning the UK�s Privatised Services to the PublicJonathan Ford* and Gill Plimmer**

Labour�s plan forrenationalisationis popular buthow costly �andeffective � wouldit be?

The water industry cites a reportshowing that water in England is

cheaper than in a number of countrieswhere ownership is either mixed or instate hands. But critics say a numberof factors can account for differentwater prices.

British rail franchises were initiallyalmost all won by private sectorcompanies. But in recent years theyhave often been outbid for franchisesby state-owned foreign entities, suchasDeutscheBahn and SNCFof France.

A recent report by the Social MarketFoundation think-tank, sponsored bythe water industry, argues that thecompensation costs would beexcessive.

It believes the state would have tofollow market conventions and paya takeover premium for the equity oftarget companies to avoid short-changing savers, disrupting themarketfor UK assets and potentially crimpinginward investment at a timewhenBrexitmeans Britain�s doors should remainfirmly open.

Nationalisation supporters also claimthat market norms would be irrelevantin cases of compulsory acquisitions. Itis an argument supported by the Citylaw firm Linklaters, which, at aninvestors conference last year held byrating agencyMoody�s, said parliamentcould set the level of compensation,

TheFinancialTimes

15No.1, 2018

EGULETTERR

FINANCIAL SECTOR REGULATIONSingle Presence Banking PolicyThe new Financial Services

Authority (OJK) Regulation on theSingle Presence Policy in IndonesianBanking was issued by the OJK. Thesingle presence policy aims to ensurethat a single entity does notsimultaneously hold a controllinginterest in more than one bank.Regulation provides that, in principle,a party may be the controllingshareholder of one bank only.Therefore, a controlling shareholder

of more than one bank must merge orconsolidate its controlled banks;establish a bank holding company; orestablish a holding function.The third option above must be

completed within six months of theacquisition of a controlling interest inanother bank. However, the first twooptions must be completed within oneyear and are governed by the followingprovisions of the OJK Circular.

(ILO, 23.02.18)

Financial Technology Law PassedMexico�s lower house of Congress

approved a bill to regulate the fast-growing financial technology sector,including crowdfunding andcryptocurrency firms, putting it amonga small group of countries to establishregulation for the industry.Regulators will soon begin crafting

so-called secondary laws, which willdetermine key details for companies inthe sector.The lawwill give fintech companies

greater regulatory certainty aroundissues such as crowdfunding, paymentmethods and rules surroundingcryptocurrencies such as bitcoin.The law permits open banking, or

the sharing of user information byfinancial institutions through publicapplication programming interfaces(APIs). (Reuters, 02.03.18)

Europe Halfway to Healthier BanksThe European Commission and the

European Central Bank announcednew rules on how banks should treat

dud loans. The good news is that thechangeswill helpmakeEuropean banksmore resilient in the future. The badnews is that the eurozone bankingsystem remains insufficientlyequipped to deal with a new crisis.European banks are still struggling

with the aftermath of the financial crisisand the ensuing recession. Unlike theirUS rivals, many European lenderschose not to sufficiently write downtheir non-performing loans, since thiswould have required raising significantamounts of new capital.The US banks took a different

route: They tackled the problem headon, helped by theTroubledAsset ReliefProgramme (TARP) whereby thegovernment spent more thanUS$400bn to stabilise the financialsystem.

(www.businesstimes.com.sg , 21.03.18)

Easing New Rules on Bank CapitalGlobal regulators plan to revise

rules determining theminimumamount

Cryptocurrency Regulation Considered

Following the growing popularity of crypto currencies and blockchaintechnology in general, the UK Treasury Committee has launched an

inquiry to assess the potential risks and benefits that Bitcoin and othercrypto currencies could bring to individuals, businesses, and thegovernment.

The UKgovernment willalso look into thepossible impact thatregulations mayhave on blockchaintechnology. Thegovernment wantsto make sure thatinnovation is nothampered, whileprotecting theinterests of investors and business enterprises.

Recently, the UK Prime Minister Theresa May warned that she mighttake serious action against crypto currencies. However, the tone of theUK government has considerably changed as several countries are draftingfriendly legislations favoring blockchain technology related investmentsthat will contribute to innovation and jobs in the future. (CPI, 25.02.18)

of capital banksmust set aside to coverrisk from trading stocks, bonds,derivatives and currencies.The alterations are expected to

make it easier for banks to apply therules when they come into effect inJanuary 2022, the Basel Committee,made up of banking regulators from theworld�s main financial centers.The changes are expected to

slightly lower the capital hit on banks.Market risks account for a smallpercentage of a bank�s total capitalbuffer, though it can be far higher forsome of the world�s biggest tradingbanks.The rules from 2016, known as the

Fundamental Review of the TradingBook, form part of the Basel III accordagreed by the Group of 20 Economiesin the aftermath of the 2007-09 financialcrisis that left taxpayers bailing outbanks which were found to bedramatically undercapitalised.

(Reuters, 22.03.18)

16No.1, 2018

EGULETTERR

FINANCIAL SECTOR REGULATION

* Professor of International Financial Systems, Harvard Law School and Director, Committee on Capital Markets Regulation** Executive Director, Americans for Financial Reform.

Abridged from an article that appeared in the Financial Times on March 01, 2018

Yes � Freeing up lenders to providemore credit would boost the economy

Hal Scott*

Ten years after the start of the financial crisis, USpolicymakers are beginning to deal with the stiff

regulatory reaction that it spawned, writes Hal Scott. TheUS Senate will take up the first bipartisan effort to rein in theimpact of the Dodd-Frank financial reform bill on smallerbanks within weeks. But that should be just one step inreform.

The bill would exempt banks with less than US$100bn inassets from the Federal Reserve�s annual stress tests andthe Federal Deposit Insurance Corporation�s annual livingwills requirement that eachbank explain how it could besafelywound down in a crisis.

However, the legislationwould not eliminate theburdens those requirementscreate for banks with morethan US$100bn in assets.These 37 banks account formore than 75 percent of USbanking assets. What theycan or cannot do is critical tothe economy. Bank regulators and supervisors do not needto wait for legislation � there are a few simple steps theycould take to free these big banks up to provide more creditto the economy.

The Fed�s stress tests are effectively the binding constrainton bank capital and thus lending. They require banks toprove they could survive extreme adverse scenarios whilestill complyingwith global capital requirements. The processhas twomajor deficiencies.

First, the Fed�s adverse scenarios are extreme to the point ofincredulity. The second problem is that the Fed�s stress testsdepend on secret government financial models to predictbank losses.

A more transparent process for setting liquidity and capitalstandards is critical. The Treasury Department has proposedopening up the stress tests and living wills process to publiccomment. The Fed, FDIC and other bank regulators shouldact on those recommendations. Meaningful banking reformdepends on strong leadership at the helm of each of thebank regulators.

Should the US Ease Regulation on its Big Banks?No � Stringent rules make the system

safer and protect the taxpayerLisa Donner**

Pressure is building towater down theDodd-Frank reformsthat Congress passed after the near-disintegration ofthe financial system in 2008, writes Lisa Donner. PresidentDonald Trump�s regulatory appointees have signalled plansto reduce capital ratios, revisit measures banning riskytrading with taxpayer-backed funds, and reduce consumerprotections.And the US Senate will soon take up a new billon the subject.

The influence that money buys is creating a massive shiftaway from themoderate reformsmade in and aroundDodd-

Frank,whichweremaking thesystem safer and helpingconsumers and investorskeep billions of dollars eachyear that an already profitableindustry would otherwisesiphon off.

US watchdogs have also laida course for deregulation. TheFed wants to loosen rulescapping leverage for thelargestWall Street banks and

water down rules that aim to fence off taxpayer-backed fundsfrom proprietary trading. The Department of Labor isundoing a rule requiring thosewho give advice on retirementsavings to put their clients�best interests first.AndTrump�shead of the Consumer Financial Protection Bureau is haltingenforcement cases and delaying regulations in a bid todismantle the agency fromwithin.

There is no fundamental trade-off between sound regulationof the financial system and shared prosperity. Quite theopposite. Even as tighter bank capital and liquidityrequirements were phased in after the crisis, bank credit tothe private sector has surged to new heights as a percentageof global output. If large banks are not forced to hold morecapital against potential losses, the public would likely finditself on the hook again if one ran into trouble.

Disinterested observers overwhelmingly agree that thechangesmadewithDodd-Frank havemade the systemmorestable and given consumers and borrowers some much-needed protection. Lawmakers and regulators must not letindustry lobbying, political spending and inside influenceimperil the welfare of everybody else.

TheFinancialTimes

17No.1, 2018

EGULETTERR

SPECIAL ARTICLE

The Labour party has pledged tonationalise contracts arranged

under the UK government�s privatefinance initiative. If it wants support, itcan turn to a recent report from theNational Audit Office (NAO), whichinvestigates the rationale for PFI andfinds it wanting. If done in the rightway and for the right reasons, PFI isnot a bad idea. Unfortunately, this hasnot happened. That has to change.

The UK has more than 700 operationalPFI deals, with a capital value of about£60bn. The annual charges for thesedeals amounted to £10.3bn in 2016-17.Even if no new deals were launched,future charges will amount to £199bn.Over the past 20 years, investmentunder the PFI has averaged about £3bna year. That is significant, but smallrelative to government investment,which now amounts to around £50bna year. Partly in response to criticism,the number and value of PFI projectshas also fallen sharply.

Yet this experiment, whichoriginated with a change in

Treasury rules in 1989 and continuedunder subsequent governments, isinteresting. It is not unreasonable forgovernment to contract for servicesfrom private suppliers. It is certainlyreasonable for the UK and othergovernments to attempt to learn fromthis influential experiment.

The Treasury makes three argumentsfor PFI contracts. First, given thebinding contract, the private sector hasa stronger incentive to build assets tobudget than government departments.Second, the private owner of the assetshas an incentive to curb running costs.Finally, the assets should be bettermaintained in the private sector.

Public-Private PartnershipsHave to Change to be Effective

MartinWolf*

* Associate Editor and Chief Economics Commentator, Financial Times. Abridged from an article that appeared in the FinancialTimes on January 26, 2018

The NAO finds, in response, that even though the private owner has anincentive to deliver the construction to budget, which makes the cost more

certain, this does not mean it will make the cost as low as possible. Bidders mayinstead charge higher prices, to cover unforeseen costs. This is particularlylikely where the asset is a complex one.

The audit office also sees �no evidence� that assets are operated more efficiently.Some services may be more expensive, perhaps due to higher standards.

Finally, the NAO says that standards of maintenance are higher in PFI projects.This seems to be because departments reduce maintenance spending, underbudgetary squeezes. Under PFI, this is more difficult. One can argue that it isdesirable for government to have such flexibility. Yet one can also argue that thegovernment needs to be tied to the mast. It needs to be deprived of the ability tolet essential maintenance be unduly postponed.

Yet there is a reason for PFI that is politically important and wrong. This isthat PFI is off the government�s balance sheet, or at least not included in

conventional numbers for public debt. This, however, is an example of what theOffice for Budget Responsibility and the International Monetary Fund rightlycall a �fiscal illusion�.APFI contract creates a long-term contractual liability, justas government borrowing does.

Where does this leave PFI? If the government can specify and monitor thecontract, can be confident that the private sector will deliver, cannot find asuperior organisational form and wants to bind itself to delivering the serviceover the term of the contract, then it can make good sense. The argument thatthe government should finance itself through direct borrowing, because it canborrowmore cheaply, is flawed: the government�s discount rate needs to includethe implicit call on the taxpayer. This leaves a restricted case for PFI, but a farfromworthless one. However, PFI must not be used simply to shift a liability offthe balance sheet. That is a swindle and, as such, quite disgraceful.

The practicecreates a long-term liability, justas governmentborrowing does

18No.1, 2018

EGULETTERR

SPECIAL ARTICLE

Curbing the �Curse of Bigness� is a Political PriorityJames Kirkup*

* Director of the Social Market Foundation, a think-tank. Abridged from an article that appeared in the Financial Times onJanuary 16, 2018

In the US, it is called the New Brandeis Movement, after Louis Brandeis, theSupreme Court justice who curbedmonopoly power and lamented the �curse ofbigness�among corporations in the early 20th century. It has yet to acquire a namein Europe, but it should, because it goes to the heart of whether markets serve thepublic, and could just save those markets from public anger and populistpoliticians.

This is a new school of thought based on old ideas. It suggests that somemarketsare increasingly dominated by small groups of incumbents with bigmarket sharesand bigger advantages over smaller challenger companies and, especially, overcustomers. That bigness, often reinforced by technology and data, can boostboth profits and grievances.

Unchallenged incumbency is, in a narrow sense, good for shareholders, whoenjoy rising dividends and values inflated by buybacks. It is less good for

the economy, where big, comfortable companies can underspend on investmentand innovation. And it hurts consumers. Research by the Social MarketFoundation shows that eight out of 10 UK consumer markets are now�concentrated�, dominated by small groups of big incumbents.

Some consumers have it worse than others. Big companies knowmore than everabout customers, and can tailor prices and products accordingly. To enticefootloose, market-savvy switchers, prices for new customers are cut. Overallmargins aremaintained by piling higher prices on to �loyal� buyers. Some of themare genuinely loyal, but others are, by dint of age, illness, incapacity ormisfortune,prone to inertia and so vulnerable to exploitation.

Most thinking about personalised price discrimination has focused on the globaltech groups able to practise it with the greatest precision. But it is happening inmore conventional markets too, and regulators are struggling to keep up with bigcompanies reluctant to share their valuable troves of data.

Classical textbook economics says that more precise pricing just means greaterefficiency. A growing real world counter-argument is that ever-wider

differences between consumers� experiences create problems of unfairness thatneed to be addressed. Enlightened businesses understand this. One big UKinsurer has, unannounced, capped the ratio between prices for new customers

and those paid by existing ones. Therationale was that the sense of injusticecreated by excessive differentials wasultimately bad for the business and forall businesses. If that company can seethe need, politicians and regulatorsshould be looking harder at bigcompanies� growing ability to pricediscriminate.

This thinking does not belong to eitherthe left or right of politics. It is foranyone who believes markets are thebest way of creating wealth, but alsoknowsmarkets need a proper social andlegal framework to be fair andsustainable. In the US, it is not justCongressional Democrats thinkingabout antitrust laws � at least oneRepublican senator is paying closeattention, too.

Some of the implications of this newunderstanding of markets will be

new policies and political engagementwith issues of competition andconcentration: any politician whowants to lead will now need to developa view of �bigness� and the courage toaddress its consequences, even if thatmeans tough conversations withinfluential businesses. StephenLittlechild, a formerUK energymarketregulator, has suggested forcing the�big six� companies that dominate theUK domestic market to give up someof their market share to challengers.

All market economies need regulatorswith the resources andmandates to dealwith more cases, and to match theresources big incumbents can deployin defence of their size. That isespecially true in Britain. Outside theEU, the UK will need its owncompetition regime. Thatmeans givingtheCompetition andMarketsAuthorityand other regulators not just a new rulebook, but bigger budgets. Escaping thecurse of bigness in 21st-centurymarketswill need big ideas, big leaders and bigregulators.

Unchallengedincumbency inmarkets is nogood forconsumers

TheFinancialExpress

19No.1, 2018

EGULETTERR

We Need a New Way to Assess the Impact ofInvestment Managers

Anne Richards*

OPINION

Therole of investmentmanagementin society is evolving. It is abun-

dantly clear that delivering good finan-cial returns for customers over the longrun is necessary and important, but isnot in itself enough.

There are three main expectations thatsociety has of investment managers:good performance at a fair price; ef-fective aggregation and allocation ofcapital across our investments; andeffective stewardship of those invest-ments. We are thus called upon to in-vest with a wider purpose than just anarrow, financial lens.

Our industry faces a challenge though.Do we have the right incentives inplace to achieve the broader societalbenefits that we have the potential �and the responsibility � to deliver?Regulation has tried to encourage the�right� behaviour in investment man-agers through a raft of new measures.

However well-intended it might bethough, regulation can go only

so far. It is up to us, as an industry, tocatalyse a shift in our own behaviour.We must move past a preoccupationwith purely financial metrics for suc-cess and demonstrate how we can in-vest appropriately to meet the widerexpectations society places on us.

I therefore believe that now is the timeto develop a new set of long-term per-formance measures for investmentfunds.

Clearly, risk-weighted financial returnswill remain an essential measure ofperformance. But this is no longer suf-ficient. We also need to encapsulate abreadth of non-financialmetrics to cap-ture the wider responsibilities placedon us and acknowledge the broaderimpact our investments have.

* Chief Executive, M&G. The article appeared in The Financial Times on April 05, 2018

How could we do this? I would like topropose a new, standardised scorecardformeasuring the performance of fundsthat could incorporate a range ofmetrics,including some or all of the following� environmental impact, carbon foot-print, supply chain sustainability, so-cial impact, and diversity and inclusion.

These could, for example, alignwiththeUN�s SustainableDevelopment

Goals,which cover five broad, interlock-ing pillars � people, planet, prosper-ity, peace and partnership.

Every fund, active or passive, could bescored against each of these metricsaccording to how they are invested.These scores should be standardised,just as financial performance is today,so that prospective investors can com-pare funds easily. Existing investorscould then work out the broader impactof their fund and how it compares withpeers.

There will be naysayers whowill arguethat returns are all that investors care

about, and that is certainly true for somesavers. It is also true that the primaryobjective of those managing invest-ments will continue to be to deliver fi-nancial returns for savers, to help themto achieve their long-term goals andneeds.

But it is increasingly evident that manypeople are looking to achievemore thanjust a benchmark-beating return withthe money they invest.

Demand for funds that incorporateESG�environmental, social and

governance � factors in their invest-ment approaches is strong and grow-ing across all major asset classes. ByNovember 2017, almost 350bn wasbeing managed in responsible invest-ment funds in Europe� up more thana fifth on a year earlier.

This trend shows that investors careabout more than financial returns, andthe industry needs tomeet this demand.Developing a new scorecard is an op-portunity for investment managers tograsp the nettle, and invest for good.

Noone fundmanagement companycan do this alone. It needs to be a

cross-industry initiative, perhaps inconjunction with exchanges or indexproviders as well as investment con-sultants and those who rate funds, sowe can build a standard view of anyportfolio footprint. Technology such asAI andmachine learningmaywell helpfacilitate this.

We all know thatwhat ismeasuredmat-ters. We need to make sure that wemeasure what matters. Moving to abalanced scorecard will be a positivestep in that direction.

M&G�s CEO calls for ascorecard approach that goes

beyond financial metrics

Published by CUTS Centre for Competition, Investment & Economic Regulation (CUTS CCIER)D-217, Bhaskar Marg, Bani Park, Jaipur 302016, India

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Publication

Policy Watch

The January-March 2018 issue of the newsletter carries a cover story entitled, �Trade in anIncreasingly Protectionist World� which states that in order to tackle the global challenge

of increasingly protectionist tendencies and design right policies for promoting domesticindustries in India, there should be convergence between trade and industrial policy.

It also encompasses a feature dubbed, �Telecom Policy must Focus on Quality� mentioningthat since the last decade, India�s telecom market has witnessed technology transitions, suchas fixed-line to mobile, 2G to 3G, and 3G to 4G networks, with a roadmap for 5G in thepipeline. A Special Article by former Member of Planning Commission Arun Maira states thatinnovative mechanisms and institutions are needed to reconcile the profit motive of capitalismwith democratic human rights. In addition, the newsletter encapsulates news and articles onvarious sectors, such as Trade and Economics, Governance and Reforms, Infrastructure,Education, Health, Competition, etc.

This newsletter can be accessed at: http://www.cuts-ccier.org/pw-index.htm

22 countries took 32 investment policy measures inthe review period (November 2017 - February 2018).The share of investment restrictions and regulationsincreased to 29 percent. Compared to the annual figuresin recent years, this records the highest ratio since 2010.

Newly adopted restrictive investment policies includea tightening of investment screening procedures,measures to protect national security and the disapprovalof some foreign takeovers. Other restrictions relate tolocal content requirements and preferences for localsuppliers in public procurement procedures.

At the same time, some countries improved entryconditions for foreign investment. Among the mostnoteworthy measures are liberalisation steps in a coupleof industries, the simplification of administrativeprocedures and new privatisation.

The reporting period also saw a significant corporatetax reform in one country. Regarding international

UNCTAD�s Investment Policy Monitorinvestment treaties, the Monitor finds that two bilateralinvestment treaties and six treaties with investmentprovisions were signed, bringing the total number ofinternational investment agreements (IIAs) to over 3320.

In line with UNCTAD�s Roadmap for IIA Reform,all new IIAs contain several reform features, givingparticular attention to the preservation of the right toregulate by clarifying key protection standards andrefining investor-State dispute provisions. Countries arealso starting to move towards the second phase of IIAreform, modernising the existing stock of old-generationtreaties.

Several negotiations for mega-regional agreementscontinue. Depending on how future mega-regionaltreaties will interact with overlapping pre-existing ones,this can help modernise today�s stock of old-generationtreaties.

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