Competition Law

[Venkata Sai Aditya Santosh Badana]   The author is a 4th year student of ICFAI Law School, Dehradun. Introduction: Several years ago, “The Economist Magazine” noted that data, particularly consumer data, had become “the new raw material of business: an economic input almost on a par with capital and labors.” The choice of buzzwords in the instant interplay between antitrust and the digital economy, however, is not merely “data”, but “big data”. Traits of “big data” that are frequently cited are large amounts of different types of data, produced at high speed from multiple sources, whose handling and analysis require new and more powerful processors and algorithms.[i] To simplify, “big data” is often defined by the three characteristics or “3 V”s – Variety, Velocity, Volume.[ii] This brings us to the question whether big data or data allied activities in general can be examined by the sector specific competition watchdog when inter alia Data protection Authorities are in place? To answer this intriguing question at its simplest, data is simply a product and a competition law analysis can be applied to it as is applied to any other product. Services founded on data can be analyzed in the same way under competition law as any other service.[iii] This article casts light on the debate of Antitrust concerns of Big data by examining some of the key issues and parameters that may need to be considered when assessing the nexus between market power, competition law and data. For this purpose it is necessary to first delineate what is by meant “big data”.The theories of anti-competitive harm usually associated with data collection and exploitation in digital markets are presented in section II, while theories to regulate Data driven combinations are dealt with in Section III. Anti-Competitive Arrangements and Big Data: Data collection may facilitate collusion when this data is employed to fix prices in tandem with the use of algorithmic technology.Factual examples of aforementioned scenario cases include United States v. Airline Tariff Publ’g Co.[iv] as well as the David Topkins case[v]. The ruling in that latter case stated that “in order to implement this agreement, David Topkins and his co-conspirators concurred to employ specific pricing algorithms for the agreed-upon posters with the object of corresponding changes to their assigned prices”. In furtherance of the conspiracy, David Topkins created a computer code that instructed Company A’s algorithm to set prices of the posters analogous to price fixing agreement, and the same algorithm was entrusted to ensure compliance. In pursuance with the agreements reached, The Northern District of California in San Francisco held that, “David Topkins and his co-conspirators sold, distributed, and accepted payment for the agreed upon posters at collusive, non-competitive prices on Amazon marketplace[vi].” Topkins also has agreed to pay a $20,000 criminal fine and cooperate with the department’s ongoing investigation. It is exigent here to outline that there that CCI as of date is yet to bring a successful prosecution or levelling of charges of employing big data for collusion. But there is glimmer of hope by drawing inferences from the recent development of CCI[vii] imposing a fine of Rs.258 crore on three leading airlines – Jet Airways, Indigo and Spice Jet after finding them guilty of tacit collusion and cartel like behavior in overcharging cargo freight in the garb of fuel surcharge. It essentially found that the three airlines had fixed a fuel surcharges at a uniform rate through algorithms on the very same day and they all increased the surcharges at the same time without any analogous rise in the fuel prices. Such conduct was found to have resulted in indirectly determining the rates of air cargo transport in contravention of section 3 of the Competition Act, 2002. Data-Driven Merger Control and Big Data: Mergers in technology sector beg the ever important question of whether an entity obtaining access to exclusive troves of big data can significantly foreclose or leverage competition? Access to data sets in a competitive markets can be of great value, for example when a data set facilitates more targeted advertising (behavioral targeting or micro targeting). While testifying before United States Congress, Mark Zuckerberg attested to the fact that, big data can potentially predict the outcome of elections.[viii] Few cases which have been subjected to merger scrutiny by the European Commission (the “Commission”) illustrate:  Google/Double Click[ix]: takeover price 3.1 billion dollar; Facebook/WhatsApp: takeover price 19 billion dollar and Microsoft/LinkedIn[x]: takeover price 26 billion dollar). All the above amalgamations have been unconditionally cleared with a few contingent directions, placing reliance upon the traditional litmus test of “significant impediment to effective competition” disregarding data analytics and third party data sharing. The European Commission’s Horizontal Mergers Guidelines, 2004 and Non-Horizontal Mergers Guidelines 2008 respectively do not outline the element of big data in merger control. Competition Commission of India (CCI) did not raise concern about Facebook/WhatsApp, while concerns about competitiveness associated with net neutrality are still fresh from the Telecom Regulatory Authority’s decision against discriminatory access to data services.[xi] While the CCI is yet to examine Big Data and its effects on competition, it is pertinent to visit opinion/Exposition 83/2015 issued by the CCI, wherein dominant position of WhatsApp and Google was averred by the Informant under Section 19.[xii] The Commission noted that the informant had failed to satisfy the ingredients of section 4 of the Competition Act 2002, under which, imposition of unfair or discriminatory terms has to be shown in sale of goods or service or price in purchase or sale of goods or services.The Google/Double Click merger decision includes nevertheless a significant disclaimer at paragraph 360: “it is not excluded that (…) the merged entity would be able to combine DoubleClick’s and Google’s data collections, e.g., users’ IP addresses, cookies IDs, connection times to correctly match records from both databases. Such combination could result in individual users’ search histories being linked to the same users’ past surfing behaviour on the internet (…) the merged entity may know that the same user has searched for terms A, B and C and visited pages X, Y and

[Rajat Sharma & Manav Gupta]   Rajat and Manav are 4th year students of NLU, Jodhpur. Introduction: A “merger” or “amalgamation” or “acquisition” [referred to as “Combination” in the Competition Act] involving an enterprise can, inter alia, result in a reduction in the number of competitors, or in the ability of the existing competitors to compete effectively, and therefore raises several competition concerns. In India, the competition law aspect of such combinations is majorly governed by Sections 5 and 6 of the Competition Act, 2002[1] (the Act), read alongside the Competition Commission of India (Procedure in regard to the transaction of business related to combinations) Regulations, 2011[2] (Combination Regulations). The Act empowers the Competition Commission of India (CCI) to exercise adjudicatory authority while deciding whether a certain proposed combination could have an appreciable adverse effect on competition (AAEC) in India. In this regard, section 6(2) of the Act requires the parties involved in such a proposed combination to notify the CCI and seek mandatory approval, before effecting or “consummating” the said combination [if the proposed transaction falls within the thresholds prescribed under section 5 of the Act].  In cases where the parties fail to notify the CCI and ‘consummate’ the transaction without getting prior CCI approval, appropriate penalties are imposed by the CCI under Section 43A of the Act. Such cases constitute a violative action termed as ‘gun-jumping’. In one such recent Order (Telenor ASA, Telenor [India] Communications Private Limited & Telenor South Asia Investments Pte Limited)[3] passed by the CCI in proceedings under Section 43A, the role of structuring a transaction in order to avoid potential conflicts with competition law were highlighted. The Order also re-established jurisprudence on what constitutes ‘control’ within the meaning of the Act, especially in cases of highly complex structured transactions. Relevant provisions: The initial notice was filed by the parties under Regulation 9(4) of the Combination Regulations. Regulation 9(4) pertains to filing of one notice for a series of interconnected transactions, by means of which the ultimate intended effect of the primary transaction is achieved. Other relevant provision attracted in these proceedings was Regulation 4, read with Item 8 of Schedule I of the Combination Regulations, which exempts intra-group asset transfer and intra-group acquisition of shares. The Transaction & Initial Observations: The initial notice under Section 6(2) of the Act was filed in 2012 by Lakshdeep Investments & Finance Private Limited (Lakshdeep). The notice was filed to notify the CCI regarding acquisition of shares of Telewings Communications Services Private Limited (Telewings/Telenor India) by Lakshdeep pursuant to a Share Subscription & Shareholders’ Agreement (SSHA). The SSHA was entered into between Telenor South Asia Investment Pte Limited (Telenor South Asia), an indirect wholly owned subsidiary of Telenor ASA (Telenor Global), Lakshdeep and Telewings. There were a series of steps to be undertaken to complete the intended primary transaction and the combination envisaged Lakshdeep to initially acquire 51% shares in Telewings and ultimately hold 26% shares in Telewings. As a first step, the transaction was contingent on acquisition of spectrum for carrying telecom operations as part of the 2G spectrum auction by Telewings. Once this was done, Lakshdeep would acquire 51% shares of Telewings (Lakshdeep Share Transaction). Next, Telewings would acquire business of Unitech Wireless Private Limited (Uninor Business Transaction) and finally, once approval of the erstwhile Foreign Investment Promotion Board (FIPB) was received, Telenor shall increase its shareholding to 74%, such that Lakshdeep shall hold 26% in Telewings (Telenor Share Transaction- Tranche I). The parties contended that Step-III and Step-IV of the series of transactions are exempted and need not be filed with the CCI, however, the CCI may assess them in the alternative. The CCI, however, while approving the Lakshdeep transaction noted that since Lakshdeep would hold 51% shares in Telewings, the transfer of business from Uninor to Telewings and consequent increase in stake of Telenor in Telewings from 49% to 74% is not an intra-group transaction and therefore, not exempted. In an appeal to the erstwhile Competition Appellate Tribunal (COMPAT), it was noted that Steps III & IV are entirely separate and were diabolically mixed up. The COMPAT also observed that the CCI’s observations on the last two steps were premature in nature. Now, fast forward to 2017 when a separate notice was filed by Bharti Airtel Limited and Telenor India for a proposed transfer of 100% shares of Telenor India to Airtel. Interestingly, when CCI perused this notice, it found out that Telenor consummated the last two steps of the proposed 2012 transaction and even increased its shareholding in Telenor India from 74% to 100% without notifying the CCI of the same. The CCI was irked as it denied the exemption in its earlier notice and since Lakshdeep exercised joint control over Telenor India, the increase of shareholding from 74% to 100% by Telenor meant a change of control from joint to sole and hence, notifiable. On the basis of these, the CCI started proceedings under Section 43A of the Act. Submissions: With respect to the applicability of exemption on Steps III & IV, Telenor submitted that interpretation of the term ‘group’ in accordance with Explanation (b) to Section 5 of the Act becomes relevant while applying the intra-group acquisition exemption, as it stood pre-amendment in 2012 (Old Item-8 exemption). The term ‘group’ under Explanation (b) to Section 5 of the Act states: “two or more enterprises which are, directly or indirectly, in a position to: (a) exercise 26% or more of the voting rights in the other enterprise; or (b) appoint more than 50% of the members of the board of directors in the other enterprise; or (c) control the management or affairs of the other enterprise.” It was asserted that since ‘Uninor’ was already a part of the Telenor Group by virtue of the latter’s 67.25% shareholding in the former, thereby meeting criteria (a) & (c) of the abovementioned definition. Further, irrespective of ,Lakshdeep’s shareholding, Telenor possessed 49% shares in Telewings and had the authority to solely exercise decisive influence

ITC Ltd. Appeals to NCLAT: Exemption Notification Retrospective or Not? [Shravani Sakpal] The author is a student at Government Law College, Mumbai. She may be reached at [email protected]. A party which proposes to enter into a combination that meets the thresholds stipulated in §5(a) of the Competition Act, 2002 is obligated to notify the Competition Commission of India (CCI) of its transaction(s) before consummation, and get prior approval.[1] This obligation is imposed so that the CCI, on a case-to-case basis, gets to adjudicate whether the combination has the potential to cause an appreciable adverse effect on competition (AAEC) in India, and consequently take appropriate action, which could mean an unconditional approval,[2] a conditional approval,[3] or a blanket prohibition on the combination taking effect.[4] A failure to notify the CCI can result in hefty penalties.[5] However, there are certain provisions which, if satisfied, can make parties involved in combinations exempt from notifying the CCI. One such exemption is provided in a notification issued by the Ministry of Corporate Affairs dated 27 March 2017.[6] The Notification The MCA notification dated 27 March 2017 exempts those combinations wherein the assets of the business division being acquired are less than INR 350 crores or the turnover is less than INR 1000 crores. This is a significant change in the merger control regime in India as now only the relevant assets and turnover of the specific business division being acquired are taken into consideration for assessing notifiability and consequently effect on competition in the relevant market. Furthermore, this practice is in conformity with the European merger control regime as only the turnover relating to the “part” of an undertaking being acquired is taken into account.[7] For instance, in Otto/Primondo Assets, the European Commission observed that “Otto acquires only specific assets out of the insolvent Primondo group… It therefore does not appear justified to take the entire…turnover into account in the competitive assessment.” Question of Retrospectivity The apex court has upheld the golden rule of construction that, in the absence of anything in a piece of legislation to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the previous prevailing legislation. A plain reading of the notification reveals that there is no provision in it making it retrospective in operation. Furthermore, it should be noted that another notification issued on the same day rescinded the 4 March 2016 notification—the previously prevailing notification—but stated that such rescission is not applicable to things done or omitted to be done before such rescission. This clearly indicates that the notification is operative only prospectively. However, despite the above, ITC Ltd. has argued otherwise before the CCI. ITC Ltd.’s Arguments vis-a-vis the Notification If legislation is proven to be merely clarificatory, as opposed to substantive, in nature, the legislation is considered to have retrospective operation. Hence, in order to argue that the notification should be taken into consideration for its asset purchases’ competitive assessment, ITC Ltd. submitted that the notification is merely clarificatory to the previousde minimis notification dated 4 March 2016. To substantiate this argument, ITC Ltd. cited a press release dated 30 March 2017 issued by the Ministry of Corporate Affairs, which states that the notification is clarificatory in nature. In addition to the above, ITC Ltd. submitted that it was entitled to draw benefit from the notification as the Show Cause Notice (SCN) under §43A of the Act was issued on 29 March 2017 i.e. after the notification was issued. The CCI rebutted the above by first arguing that the changes brought about by the notification were substantive in nature. It then relied on a Supreme Court judgment to argue that the press release does not have a statutory force and, hence, cannot alter the position as prescribed by statutes. Furthermore, the CCI brought attention to the date of ITC Ltd.’s signing of the binding documents (Asset Purchase Agreements), i.e. the trigger documents, which is 12 February 2015. According to §6(2)(b), the CCI must be notified within 30 days of signing the binding documents, which in the instant case would be 12 March 2015. Hence, the CCI adjudicated that as ITC Ltd.’s obligation to notify was well before the notification was issued (almost two years), it could not claim benefit under the notification. Ultimately, after taking into consideration all the submissions put forth, the CCI held ITC Ltd. liable for violating §6(2)(b) and §6-2A, but imposed a substantially mitigated penalty of only INR 5 lakhs. Analysis Although the CCI never gave in to ITC Ltd.’s argument for retrospectivity, the high degree of mitigation of penalty is a clear indication that the argument holds a heavy persuasive value and, perhaps, legal clout as well. Even though this nominal penalty is but peanuts to ITC Ltd., it has still appealed to the NCLAT against the CCI’s order. The substantial issue of law now lies in the hands of the NCLAT to decide upon. If the NCLAT takes into consideration the intent of the legislature of easing business in India along with the press release declaring the notification clarificatory, it is highly likely that the notification will be adjudicated to be retrospective. However, the CCI has already voiced its (valid) concern that declaring the notification retrospective would create chaos and perhaps lead to opening of all the old closed transactions for fresh scrutiny. A way to counter this problem could be adjudicating the notification to be operative only in the instant case, as the SCN under §43A was issued after the notification came out. Instead of blanket retrospectivity, such a judgment of the NCLAT would lead to the notification being operative for only those combinations that came under scrutiny by way of an SCN post 27 March 2017, despite their trigger documents being signed before the notification. Conclusion NCLAT has to now shoulder the heavy responsibility of maintaining the sanctity of the mandatory nature of the merger control regulations, while at the same time abiding by the legislature’s intent of easing business in India. The Appellate Tribunal must be careful in striking a balance between the two seemingly contradictory ends. [1] The Competition Act, 2002, §6(2)(b). [2] Id.,

Passage to Cheap Internet: A Case Study on Competition Commission’s decision in Airtel v. Reliance. [Anmol Gupta] The author is a second-year student of National University of Juridical Sciences, Kolkata. On September 1, 2016, the Reliance Industries under the aegis of Mukesh Ambani launched a new subsidiary Reliance Jio (‘Jio’) in the telecom sector. Jio, unlike its competitors- Airtel, Idea and Vodafone- offered Volte services to its customers, and the media soon termed Mukesh Ambani as a game changer. However, its competitors described Jio and Reliance Industries’ actions as predatory in nature. Following its claims, Airtel filed a complaint against Jio before the Competition Commission of India (“Commission”). In its decision,[1] the Commission rejected Airtel’s complains and held Jio’s activities to be a legitimate exercise of competitive pricing. The following note offers an insight into the decision. Competitive or Predatory Pricing? For a policy to be predatory in nature, the following conditions must exist: the company must be a dominant market player in the relevant market, the prices offered must be lower than the cost of production of such goods, and such lower prices must be coupled with an intention of driving out competitors and recovering the losses in the long term.[2] It is submitted that at the time of decision, Jio was the only company to provide free calling and SMS services to its customers. Ignoring the cost which Jio had to incur on Jio-to-Jio services, Jio still would have been required to pay a 14- paise per minute cost to other networks.[3] This shows that Jio charged for services at a rate lower than its cost of production. Further, Jio had intention to drive out competitors and recover market losses gradually. It is submitted that the Commission has wrongly interpreted the free calling and internet services offered by Jio to be part of fair competition. The Commission, ignoring Jio’s high share in the market and its presence since September 2016, held Jio to be new entrant in the market.[4] Further, the Commission failed to consider merger of Jio with Reliance Communications- another player of the relevant market.[5] Reliance Communications, prior to its merger with Jio, had already made plans for merger with Aircel and Sistema in the year 2017;[6] such move, if considered, would have been enough to establish Jio’s intention to reduce competition. As per section 4 of the Competition Act, 2002, for a pricing policy to be classified as predatory, the company must have a dominant position in the relevant market. Further, as per section 19(4), dominant position can be determined by seeing the size and resources, the economic power, the source of such position along with the consumer dependence on the company. Hence, the Commission should have focused only on the market share of Jio while determining its position in the market. Airtel presented two key submissions before the Commission. First, Reliance Industry, being a parent company of Jio, had given Jio full access to its funds for its development purposes, and second, Jio’s offers such as Jio Welcome Offer were predatory in nature aimed at taking away Airtel’s customers. However, both of these contentions were rejected by the Commission on the certain grounds. For the first contention, the Commission noted that the relevant market of the concerned parties was characterized by presence of ‘entrenched players’ like Tata in a well-developed telecom market. However, the Commission’s reply did not answer the possibility of the parent company’s money injection into its subsidiary; further, as per the Commission, a company can only be liable for predatory pricing when it enjoys a dominant position in an under developed market. For the second contention, the Commission observed that Jio’s Welcome offer was a legitimate strategy to attract new customers in order to strengthen its position in the market. It is submitted that the issue was not the legality or illegality of the offer but the effect of the offer on the market. Although the telecom giants such as Airtel and Idea were able to ward off the effects of the strategies, the same had not been possible for the middle and lower-class businessmen who had only two options- to switch or to resign. In the decision, the Commission denied the possibility of Jio being a dominant player on grounds of it being a new entrant in the market. However, it can be argued that Jio as of the date of decision did have a dominant position. Interpreting section 4 of Competition Act, 2002 and the Commission’s decisions, for a company to be charged for predatory pricing, such company must have a dominant market position. This being the established Indian position, a new entrant irrespective of being loaded can never be held to be holding a dominant position. The same was showcased in this case; however, Jio was not a new entrant. It is submitted that Jio entered the market in September 2016, which gave it a substantial incubation period. As of August 2017, the time when the case was heard, Jio had one-third of India’s consumer base and 85% of Indian mobile data network market.[7] Despite such facts, the Commission held Jio to be a new entrant in the market. Not Pricing but Predatory Behaviour and Intention The Commission had ruled in favour of Jio on grounds of it being a new entrant in a well- developed competitive telecom sector and its pricing having no ‘tainted anti-competitive objective.’ The following part analyses predatory intention and predatory behavior of Jio. Predatory Intention For predatory pricing, the company through its actions and policy must signify a predatory intention. Jio’s predatory intention could be inferred from the facts given below. Reliance Industries being the financial muscle Reliance Jio is a subsidiary of Reliance Industries, the latter being a dominant player in other markets. The unlimited investments made by the latter were a clear breach of section 4(2)(e) Competition Act, however, Commission while linking predatory pricing with the dominant position in the same relevant market stated otherwise. By way of its decision, the Commission implicitly allowed subsidiaries with strong financial backing to

Jio: An Illusion in the Telecom Industry. [Rajat Sharma and Harsh Salgia] The authors are third-year students of National Law University, Jodhpur. Competition and Antitrust laws in various jurisdictions aim at safeguarding long-term consumer interests from overt and disguised predatory tactics of market actors. These laws regulate, monitor and assess competitive practices between and among firms. They affect major industries and business houses in India among others and every firm tries to be on its toes to not indulge in practices deemed to be anti-competitive. Predatory pricing is one such practice, and this article is an attempt to unfold the concept in the context of the latest Jio turmoil in the telecom market. Predatory pricing is the practice of pricing the goods or services at such a low level that other firms cannot compete and are forced to leave the market.[1] The explanation (b) to Section 4 of The Competition Act, 2002 defines it as follows: …’predatory price’ means the sale of good or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reducing competition or eliminate the competitors. Sunil Mittal-owned Airtel had alleged at the CCI that Jio’s pricing strategy amounts to “zero pricing” and Jio is indulging in predatory pricing in contravention to S.4(2)(a)(ii.) and S.4(e) of the Competition Act, 2002. Competitors are forced to lower their prices as a result of actions of one particular firm which acts in a disruptive way and sells its products below average cost level or indulges in zero pricing strategies. It is a prudent business strategy on behalf of a dominant undertaking (who tend to have deep pockets) to engage in loss making activities for a short period of time which will ensure the exit of the competitors.[2] The prerequisite to establishing practice of predatory pricing is to affirm use or misuse of dominant position. Ambani’s Gift to the Nation: Jio RCom  Jio launched its services in September, 2016 as a fresh entrant in the market which already had several established players. Its USP since the beginning was the extremely attractive feature of zero price for 4G data services and free calling services. Such sustained discounting practices are bound to raise warning signals to various telecom service providers due to the tendency of a single player to dominate the telecom market. Although Jio was a new entrant not too long ago, but due to its pricing strategies and customer plans, it has acquired significant share in what could be called, a surprisingly short amount of time. In terms of broadband subscriber base and data traffic, it holds 85% of the market share. Although, on the contrary, it is also true that in the broader telecom services market, Jio’s share is lesser than that of Airtel’s currently. Jio has also acquired significant amount of electromagnetic spectrum in the 1,800 megahertz (MHz) and 800 MHz bands during the last two rounds of spectrum auctions. But the company is essentially competing with the incumbent firms only within the market of 4G products and services. Eventually, all of this analysis boiled down to one question, namely, whether the relevant market in Jio’s case is market for 4G data and broadband services or is a broader cellular services market. Analysis of the Relevant Market: Whether 4G is a Relevant Product Market in Itself? When the behaviour of an undertaking in dominant position is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market.[3] Before establishing the fact that any establishment has undertaken the practice of predatory pricing, it has to be established that such a firm was in a dominant position and abused the same. Jio holds the largest share of spectrum in the 2300 MHz category and the 800 MHz category and further its subscriber base of 72.4 million as on 31st December, 2016 is the highest in the mobile-broadband user base.[4] In fact, the market for 4G services is quite different from the traditional market for 2G or even 3G services. This can be said due to the presence of features like high-speed downloads, elevated voice excellence, advanced infrastructure requirement and the specific need for subscribers to have 4G compatible mobile instruments. There are cases decided by the CCI itself which suggest that services for 4G can be taken as a separate relevant product market itself other than the broad spectrum of services which include 2G, 3G and voice-calling services.[5] The CCI, however, noted, considering Airtel’s Annual Report, that it would be inappropriate to distinguish wireless telecommunication services on the basis of technologies used to provide such services. It is not sure whether the Annual Report of Airtel is a very strong basis for the determination of differences between 3G and 4G LTE services. Also, the CCI did not dwell upon the fact that Jio is offering their calling services through the 4G-enabled LTE technology and is not providing services in the 3G sector. Therefore, it is not understood how Jio’s services fall in the broad relevant market of wireless telecommunication services and not only within the 4G LTE services product market. Jio: Market Disruptor or Dominant Entity? A dominant position exists where the undertaking concerned is in a position of economic strength which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, its customers and, ultimately, consumers; in order to establish that a dominant position exists, the Commission does not need to demonstrate that an undertaking’s competitors will be foreclosed from the market, even in the longer term.[6] Jio started

The Competitive Dynamics: Analysing The CCI Decision In The Reliance Jio Case. [Praharsh Johorey] The author is a fifth year student of National Law Institute University, Bhopal. On the 16th of June 2017, the Competition Commission of India in C. Shanmugam v. Reliance Jio Infocomm Limited  held in response to information filed by Bharti Airtel (“Airtel”) that Reliance Jio Infocomm Limited (“Jio”) was not in abuse of its dominant position in the telecom sector, dealt with under section 4 of the Competition Act, 2002 (“the Act”). It was argued by Airtel that Jio’s extra-ordinary investments in the sector were indicative of the dominant position that it enjoyed, which it abused through predatory pricing – offering its data and telephony services at a minimum discount of 90% relative to its competitors. However, the Commission’s analysis did not extend beyond declaring that Jio could not be considered as being in a dominant position in the market – in that the ‘presence of entrenched players with sustained business presence and financial strength’ did not raise competition concerns. In this essay, my primary aim is to assess the concept of ‘dominant position’ under Indian Competition Law through a critique of the Commission’s decision in respect of Jio – and what it could come to mean for an increasingly disrupted telecom sector in India. A Dominant Position Under section 4 of the Act, the term ‘dominant position’ has been defined to mean ‘a position of strength, enjoyed by an enterprise, in the relevant market, in India, which would enable it to: operate independently of competitive forces prevailing in the market; or affect its competitors or consumers in the relevant market in its favour. The Competition Commission notes that while dominant position is traditionally defined in terms of market share of the enterprise in question, section 19(4) of the Act lists a number of factors are mandatorily required to be considered, such as the size and resources of the enterprise, the economic power of the enterprise, the source of dominant position and the dependence of consumers upon the enterprise. Thus, to effectively gauge whether Jio does in fact enjoy a dominant position in the Telecom sector, the market share it enjoys need only form part of the Commission’s overall consideration. To support its assertion that Jio does in fact enjoy dominance, Airtel pointed to two key factors – the unprecedented investment (nearly ₹1,50,000 crore) made by Jio’s parent company reflecting its lasting economic power, and the ‘welcome offers’ (free unlimited services for specific durations) which through ‘predatory pricing’ served as the source of its increasingly dominant position in the market. The resultant impact, Airtel argues, disproportionately affected Jio’s competitors, forcing them to reduce their tariffs to remain competitive – causing them to enter a negative spiral of loss-making and dwindling business feasibility. Let us examine the Commission’s response to both these contentions individually. First, in respect of Jio’s economic power, it noted: “As may be seen, the market is characterised by the presence of several players ranging from established foreign telecom operators to prominent domestic business houses like TATA. Many of these players are comparable in terms of economic resources, technical capabilities and access to capital.” This does not sufficiently counter the contention that Jio’s parent company, Reliance Industries has, and will continue to, inject significant sums of money at an unprecedented rate into a sector that has resulted in vast and rapid movements away from established market entities into Jio. The very presence of established industries such as the Tatas, for example, does not necessarily exclude the possibility of new entrants in the market exercising lasting and disruptive economic power. More pertinent however, is the argument concerning Jio’s ‘predatory pricing’. The term predatory pricing is defined under section 4 of the Act, being the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors. Jio’s introductory offer – free and unlimited data, voice calling and roaming amongst other telecommunication services – was and continues to be unprecedented in the Indian telecom sector. The Commission’s answer to this contention is particularly crucial: “The Commission notes that providing free services cannot by itself raise competition concerns unless the same is offered by a dominant enterprise and shown to be tainted with an anti-competitive objective of excluding competition/ competitors, which does not seem to be the case in the instant matter as the relevant market is characterised by the presence of entrenched players with sustained business presence and financial strength.” For those following this line of argument closely, its circular nature is made quickly apparent.  For any pricing to be considered predatory, it must be tainted with an ‘anti-competitive objective’. However, the Commission rejects the notion that Jio is guilty of such objective, on the ground that the Telecom sector is characterised by the presence of ‘entrenched players’ – implying therefore that only in a market that is underdeveloped or lacking participation can anti-competitive objectives be manifested. It is also established that providing a bundle of telecommunication services free of cost for a period of nine months clearly falls within the literal meaning of selling ‘below the cost’. Even after such welcome offers ended, it is estimated that Jio offered its high-quality services at nearly 90% discount, to which the Commission responded: “In a competitive market scenario…it would not be anti- competitive for an entrant to incentivise customers towards its own services by giving attractive offers and schemes. Such short-term business strategy of an entrant to penetrate the market and establish its identity cannot be considered to be anti-competitive in nature and as such cannot be a subject matter of investigation under the Act.” It is important here to note that all participants in the telecom sector operate through offering various incentives to customers – the legality of such offers is not in question. Instead, the question is whether the telecom sector could