Competition oversight – What can be the role of the regulator in designing rules that limit anti-competitive behavior by the incumbent operator?

[Response by Sophie Trémolet and Diane Binder, October 2009]

A key objective of regulation includes controlling the incumbent operator’s market power in market segments that have not been opened to competition so as to ensure a leveled playing field for potential new entrants. Depending on the institutional set-up, anti-competitive behavior may also be monitored based on general competition law by a competition authority, in which case cooperation between the sector regulator and competition authorities should be organized.1

Regulation functions limiting anti-competitive behavior from the incumbent operator may include the following:

In all the tasks mentioned above, regulators in developing countries may need to pay specific attention to the challenges faced by poor customers in accessing service.9

If regulation of the main operator is to benefit the poor by ensuring availability, affordability and sustainability of basic services, regulators need to: i) provide a framework for competition so that a level-playing field can be maintained between the incumbent utility and small-scale operators, such as in the water and/or electricity sectors where they often operate informally; ii) create incentives for the dominant operators to extend services; iii) allow a flexible approach to service quality by the incumbent operator and others so as to adapt to customer demand; and iv) establish a tariff level and structure that encourage higher access to services without jeopardizing financial stability.



Restructuring Public Utilities for Competition
Washington, D.C, 2001.

Taking into account the poor in Water Sector Regulation
Water Supply and Sanitation Working Notes, Note n°11, Water Supply and Sanitation Sector Board of the Infrastructure Network, World Bank Group, August 2006.
S. Trémolet & K. Hunt

Access Pricing in the UK Water Industry: The Efficient Component of Pricing Rule – Economics and the Law
prepared by NERA for Northumbrian Water, March 2001.
R. Hern, H.L. Jung and S. Trémolet

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.


  1. See answer to the FAQ: “Competition Authorities – What are the potential functions of competition authorities and how can they collaborate with sector regulators?
  2. See Basic Forms of Regulation and Quality of Service for more details.
  3. See Competition in Utility Markets for more details.
  4. “Under ECPR current retail tariffs are used as the benchmark for access tariffs and a “rebate” is provided by the company for elements of the retail service that are not drawn on by the entrant. For example, a network access tariff would be calculated from the unbundled retail customer tariff, by deducting the avoidable costs of abstraction, harvesting and treatment, and customer service”. (NERA, 2001)
  5. Refer to BoKIR Competition in Utility Markets for more details about structural separation.
  6. Ownership separation is the vertical separation of non-competitive activity and the competitive activity. In this setting, the owner of the non-competitive component has no incentive to discriminate between competing firms in the competitive activity. (OCDE, 2001)
  7. It is the joint ownership of the non-competitive activity by firms in the competitive component. Under this approach, each of the downstream competitive firms owns a share in the non-competitive activity, and therefore eliminates the incentive to discriminate among rivals. (OCDE, 2001)
  8. Operational separation involves placing the non-competitive component under the control of an independent entity (separation of ownership and control). (OCDE, 2001)
  9. See FAQ “What should regulators do to meet social objectives set by policy-makers?” in the Section “Social pricing and rural issues“.