Regulator of the Month: Nelson Jung, Competition and Markets Authority
Each month we will be featuring a focus piece on either an in-house counsel or a regulator. Our first General Counsel/Regulator of the month is Nelson Jung, Director of Mergers Group at the Competition and Markets Authority in the UK.
Q: As a qualified lawyer in both Germany and England and Wales, what interested you in becoming a regulator with specific focus on mergers?
A: Becoming a regulator had not actually been my intention when I started my legal career. When I first joined the Office of Fair Trading on secondment from Clifford Chance, my aim was to broaden my experience of UK competition enforcement work and I was grateful for the opportunity to gain strategic insights into how antitrust investigations are conducted here. I then decided to join the OFT, and subsequently the CMA, at a time when the UK competition law regime was undergoing a profound period of change. It has been a fascinating experience to help shape these developments and implement a new regime in practice. Merger control in particular plays an important role in contributing to the Government’s growth agenda by preventing anti-competitive transactions that harm consumer welfare. From a personal perspective, I very much enjoy the fast-paced, transactional nature of merger control work and the fact that we have responsibility for a wide variety of different markets across the entirety of the economy – it is both an important and exciting role!
Q: With the Competition and Markets Authority (CMA) having taken over responsibility for both Phase 1 and Phase 2 UK merger control in April 2014, what do you consider to be the main challenges and benefits of the new regime?
A: First, I am very pleased that the UK continues to benefit from its voluntary merger control regime. It allows the CMA to focus on mergers that are potentially problematic, rather than burdening businesses with unnecessary bureaucracy and red tape in transactions that are competitively benign or even pro-competitive. The changes to the regime have overall strengthened and streamlined the process further: with Phase 1 and 2 under one roof, we have started to adopt an ‘end-to-end’ approach, focusing on greater efficiency, transparency and legal certainty. We have, for instance, adopted a more targeted approach to non-notified mergers which has resulted in fewer cases being called in and a greater proportion of those being called in giving rise to competition concerns. In relation to smaller mergers, we have been more flexible in exercising our discretion not to make a Phase 2 reference and have cut down on procedural steps, leading to swifter outcomes.
We have also improved the scoping and investigation process for cases, including the transfer from Phase 1 to Phase 2. Whilst the UK regime has preserved the ‘fresh pair of eyes’ and independence of decision-making at Phase 2, we are reducing some of the duplicative elements of this separation that are unnecessarily burdensome for businesses.
In Phase 1 we have hardly ‘stopped the clock’ once our now statutory 40 working day timetable has started. This marks a big shift from the OFT’s practices and results in greater predictability for notifying parties. Another success story arising from the merger between OFT and CC is that we now have the expertise of the CC’s remedies team at our and the parties’ disposal at the early stages of Phase 1 where this is appropriate. The reformed ‘undertakings in lieu’ process is working remarkably well in practice and has allowed us to devise strong remedy outcomes avoiding the need for costly Phase 2 investigations. The Greene King/United Spirit pubs transaction is a good example of that.
We have also ‘re-discovered’ the fast-track procedure in the BT/EE transaction and I anticipate us making more use of this tool going forward in cases that do not appear to lend themselves to a Phase 1 outcome. Again, what matters to us is that the overall process, end to end, is more efficient and streamlined.
However, we continue to listen carefully to concerns raised by businesses and their advisors and are responding to challenges. By way of example, whilst we impose initial enforcement orders in nearly all completed cases, we are increasingly flexible in granting derogations and now revoke enforcement orders at an early stage of the Phase 1 investigation in cases we consider to be sufficiently unproblematic. Another challenge was to adapt to the use of a Merger Notice Form: we are reducing the amount of time the ball is in our court during the pre-notification stage and are continuously seeking to ensure our information requests are as targeted as possible to avoid burdening businesses unnecessarily.
Q: The application of competition laws and regulation to disruptive business models, for instance online platforms like Uber and AirBnB in the sharing economy, is an increasingly hot topic. To what extent do you as a regulator think digital platforms should be subject to ex-ante regulation rather than addressing any potential concerns through competition enforcement action?
A: There is real momentum behind this debate, in particular given the European Commission’s ongoing public consultation on the merits of platform regulation in the context of its Digital Single Market strategy. The UK’s House of Lords is now also conducting an inquiry into the matter. The CMA is cooperating with the European Commission on its Digital Single Market strategy and will also provide evidence to the House of Lords.
As a starting point, both policy makers and regulators should err on the side of caution in considering further interventions - be that ex-ante regulation or ex-post enforcement - unless and until there is clear evidence of harm arising from business models that are referred to as ‘online platforms’. The notion of ‘online platform’ covers a wide range of different types of platforms whose functions and characteristics can differ considerably, including communications and social media platforms, operating systems and app stores, e-commerce platforms as well as payment systems or those related to the sharing economy. It is difficult to see how any type of broad-brush ex-ante regulation aimed at “platforms” in general could provide satisfactory outcomes across such a wide variety of different business models. Nor should we assume that, if one is looking at the regulatory landscape, additional regulation is the solution to perceived issues: it might well be that the deregulation of existing markets could be the appropriate way to level the competitive playing field and drive innovation and efficiency in the sector.
It is of course possible that, from both a competition and consumer protection perspective, online platforms give rise to harm: they can exhibit strong network effects, making it more likely that the “winner takes it all” by capturing the entire market. If there are barriers to users of platforms switching or multi-homing between several platforms, for instance as a result of contractual restrictions, then this can dampen inter-platform competition, perpetuate market power and damage innovation.
However, the presence of network effects of itself will not necessarily give cause for concern in a particular case. They can also mean that platform markets are dynamic in that platforms have strong incentives to offer good terms in order to grow the number of users and increase the value of the platform to future users. In this sense, network effects can lead to fiercer competition. Given the nature of digital markets, which are characterised by new technologies and high levels of innovation, online platforms may continuously face the threat of entry of new competitors with a better proposition. In any event, we should remain mindful of the unintended consequences of intervention, including inadvertently chilling dynamic competition and innovation, but at the same time remain vigilant to avoid acting too late where harm does occur : today’s disruptors can quickly become tomorrow’s incumbents. In general, ex-post enforcement action may be more likely to result in desirable outcomes in these markets given that any such actions can be more easily targeted at, and require specific evidence of, harm on a case-by-case basis.
Q: Some of these issues go beyond what a single national competition authority can solve on its own. How would you describe the relationship between NCAs and the European Commission and do you think that there has been a change under Commissioner Vestager?
A: In relation to these digital markets, although relevant specificities of national markets do of course need to be taken into account, it is certainly important to avoid a patchwork of potentially inconsistent rules which could undermine legal certainty and business confidence. This would not serve ultimately to operate in the best interests of consumers across the EEA and we are making contributions to the ongoing debate in that spirit.
More generally speaking, a significant proportion of our work has an international angle and we work very closely with other NCAs and the European Commission across a range of important fora, including the European Competition Network and the EU Merger Working Group as well as wider global networks such as the ICN and OECD.
With regard to merger control specifically we play an active role in the Advisory Committee where we recently acted as Rapporteur on the GE/Alstom case. We are also advocating procedural enhancements to the Advisory Committee process with a view to ensuring that utmost account is taken of Member States’ views and that Member States’ votes on Phase 2 decisions by the European Commission are recorded in a manner that better reflects their views and is more transparent. There have been only few occasions where this has not, in our view, been the case and we are very much hoping that the new Commissioner and her team will continue to work with us on these improvements. My impression so far is that that the relationship is working well and she has appointed an excellent, high calibre team on the mergers policy side. Personally, I am impressed with statements she has made, for instance regarding consolidation in the telecoms sector. We have just asked the Commission to refer the H3G/O2 telecoms merger to the CMA for review – this transaction would result in a ‘4 to 3’ in the UK and we consider that we are best placed to review it, not least given that any potential harm would occur in the UK and seeing that we are also currently reviewing the BT/EE deal. Irrespective of whether the European Commission decides to refer the case to us, I am confident that we will continue to cooperate very closely with our colleagues in Brussels on this case as well as other cases that matter to the UK.
