Competition Law

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