Competition Buzz: Regulation reform in Spain: Work in progress, or failure?

By: Juan Delgado & Hector Otero

Global Economics Group

Two years after the National Commission for Markets and Competition (Comisión Nacional de los Mercados y la Competencia, CNMC) was created it would seem the reform’s promised benefits for Spain’s regulatory bodies have yet to materialize. The reform consisted of a “top-down” process undertaken from a purely organic standpoint, ignoring either functional design or the adoption of concrete structures that might be expected to materialize the (scant) benefits offered. The success of this incomplete reform was left in the hands of its directors and, at the moment, the success is hardly visible.

The reform was justified by the proposed creation of synergies, primarily concerning budgets, and by eliminating points of conflict between regulators, mostly the already routine disagreements between the former Telecommunications Market Commission (Comisión del Mercado de las Telecomunicaciones, CMT) and the National Competition Commission (Comisión Nacional de Competencia, CNC).

The reform essentially consisted of fusing together the structures of old regulators under a single roof with a small number of horizontal units, and in the replacement of Sector Councils by a Multi-sector Council chamber. A separate Council was, fortunately, left aside to concentrate on the application of Competition law.

The opportunity to change other improvable aspects of the old system, such as the process for selecting and naming Councilors, directors and Council duties, or the transference of new powers (such as fixing of tariffs in the energy and airport sectors) to organisms that previously lacked them.

The institution’s very design seemed unfit for the building of synergies. When looking at the Organizational chart, the only synergies seem to have occurred at a Council level, with greater possible coordination and coherence in the actions of different sectors, as well as in the decisions of regulators and the competition authorities. Lower-level synergies, on the other hand, only appeared in the creation of common administrative areas, mostly separated from the actions of the regulator proper (human resources, management, IT, etc.) with the laudable exception of a united legal advisory department.

Two years after the reforms, what we are left with is an inability in the Council’s sector chambers to take on matters in such diverse areas, as well as a poorly resolved confrontation between the sector-specific and the competition chambers. This extends even to the different members of the Competition chamber, resulting in endless voting and dissent, which in turn reduces the solidity of the commission’s rulings.

In terms of investigations, sector-specific regulators and the defense of competition cases seem to follow totally independent courses, with what few synergies arise materializing out of the (as yet meager) internal mobility of personnel among the different units, allowing for the sharing of experiences and multi-sector knowledge. The mobility, however, has thus far been fundamentally one-sided, with former CNC personnel taking positions in sector regulators and hardly any movement in the opposite direction.

The success of this merging of regulators is therefore at the mercy of the agency directors’ wills and their ability to resist the tendency towards building their own areas of influence, and to push forward a culture of collaboration and teamwork that may result in better knowledge about the workings of different markets, along with better regulation for them, both ex-ante and ex-post.

In any case, and avoiding any judgment on whether a single regulator was the best choice, it’s obvious that the institution’s design might have been more favorable to integration through cooperation and to the redistribution of different duties between regulators. The reform might also have been used as an opportunity to improve the decision-making process by designing a better selection mechanism for councilors and directors, as well as a re-writing of the Council’s duties, which simply cannot be the same as they were before, when there was a far larger number of members.

In the first place, the new institution has failed to take advantage of possible synergies resulting from the integration of regulators. Among many needed improvements, the CNMC must (i) establish internal protocols and increase transparency in its instructions, (ii) promote the creation of multi-disciplinary teams, (iii) increase the profile of horizontal units such as the Studies, Normative Analysis and Economic Analysis divisions, and (iv) take advantage of knowledge already accumulated by sector regulators in order to monitor the market and aid in cartel detection.

Second, the Commission must redefine the duties of the regulators and the Council, in order to make better use of the existing human capital and to improve the decision-making process. On the one hand, the macro-regulator’s duties should be limited strictly to those which respond to the need for an independent regulator. On the other hand, the Council is faced with far too many duties and too few resources to take them on. It’s necessary, therefore, to either reduce the number of duties given to the Council (making it a mere supervising organ watching over the directorates, as in the Dutch or British models) or else increase their level of specialization, granting them greater resources (as in the German model).

Finally, the institution can and should increase its independence. The Commission currently lacks financial autonomy, facing serious limitations in terms of personnel due to a preference for hiring career bureaucrats, even limiting certain positions and duties to them.

Read the Full Article (In Spanish)

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