CCI’s Market Study In Telecom Sector: Lessons From The Past And The Foreign

[By Raghav Harini N]

The author is a student at ILS Law College, Pune.

The Competition Commission of India (CCI) recently published a report on a market study on the telecom sector in India. The Report examined the mechanics and the economics of the sector to identify potential competition law concerns.  This post explores these concerns and analyses them from the lens of CCI and international jurisprudence to address them in an effective way. In light of the same, the article also proposes the introduction of market -structure-based assessment in lieu of dominance-based assessment under S.4 of the Competition Act, 2002 (the Act) and unified regulatory consultation between sectoral regulators and CCI.

     I.   Key Takeaways from the Report

  1. The Indian Telecommunication sector is highly concentrated with 3 private sector Telecom Service Providers (TSPs) namely RJIo, Airtel and Vodafone-Idea controlling 88.4% of the market share.
  2. RJio with its initial launch offer caused a disruptive reduction of data prices; this was received by parallel pricing strategies by the competitors. While this seems to have placed India as the world’s cheapest telecom market, the TSPs have been earning negative profits consistently, indicating a sector-wide distress.
  3. According to the Report, consumers value network coverage, customer service, tariff packaging and lower tariffs in choosing their TSP. With greater parity among the products of the competitors, non-price attributes contribute significantly towards retaining customers and widening the clientele.
  4. The industry is also showing an accelerated interest in vertical integration with over-the-top (OTT) platforms. The recent examples include Reliance Jio’s acquisition of stake in both Eros and Balaji Telefilms, Airtel’s offer with Hotstar , Vodafone’s deal with Amazon, and Facebook’s investment in Reliance Jio. Two of the TSPs have also introduced their own content platforms namely Airtel’s Hike, Reliance’s Jio Cinema.

   II.Analysis of Competition Concerns in the Telecom Sector

  1. The Report has highlighted that the vertical convergence in the sector has the potential to cause adverse effects on the competition. The current TRAI framework on net neutrality proscribes TSPs from engaging in differential treatment with any of its vertically integrated entities; the Report clarifies that if the dispute merits detailed competition law investigation, then CCI may take it up. It has also cautioned the potential data aggregation in the telecom sector and CCI may examine excessive data extraction by these digitally-enabled entities.
    Whether excessive data extraction constitutes a valid cause of action under competition law is controversial. Several antitrust agencies including CCI shy away from taking up excessive pricing cases, for reasons such as inability to define what constitutes excessive, presence of countervailing powers, self-correcting attributes of the free-market system, and perils of regulatory intervention; arguments of same fashion may be applicable to excessive data extraction as well. However, excessive data harvest by entities with significant market power may be construed as exploitative behaviour from consumer protection and privacy angles. The German antitrust authority in the case against Facebook explored the anti-competitive and welfare-reducing effects of excessive data extraction by digital platforms. The authority observed that violation of privacy laws can be read into abusive conduct by a dominant entity since the aim of the law was to prevent the dilution of the constitutional right to self-determination in business dealings, where one party is able to unilaterally command the terms. It remains to be seen how the CCI would read the intersection of competition law, data protection law, and our constitutional right to privacy into exploitative data harvest practices.
  2. Privacy has been recognised as a non-price parameter by both European Commission (EC) and the Federal Trade Commission (FTC). The Report, drawing inspiration from global jurisprudence, has clarified that such privacy concerns may be examined under the Indian competition law domain. It observed that privacy is central to consumer welfare, any dilution or violation of the data protection standard by a firm with significant market power can be examined by CCI. Earlier CCI had expressed a divergent view in the case Vinod Kumar Gupta v. WhatsApp Inc o by stating that “allegations of breach of the IT Act, 2000 do not fall within the purview of examination under the provisions of the (Competition) Act.” The Report’s observation in converging the two domains of law is welcome at a time when the industry is witnessing rapid vertical integration. CCI may also consider examining the privacy and data protection standards of the merging entities as a metric of consumer welfare at the merger approval stage.
  3. Digitally enabled markets are characterized by structural risks such as network effects and lock-in effects. The creation of walled gardens, as the Report describes, is a result of technological unification and vertical integration in the telecom sector; this tends to lock the consumers within the ecosystem, leaving no incentive for them to switch or cross-visit other TSPs. TSPs also perform platform roles between content providers and subscribers. A vertically integrated firm therefore can hinder competition and indulge in abusive conduct. However, none of the TSPs enjoys a dominant position in the market and therefore they cannot be brought under the purview of S.4 of the Act since it employs a dominance-based assessment. In consideration of the structural risks that sectors such as telecom may be exposed to, an alternative assessment may be considered on lines of Competition and Market Authority’s Market Investigation Regime. This regime employs a market-structure-based assessment in lieu of dominance-based assessment. This is effective for two reasons; firstly, it does not require the presence of a dominant firm in the relevant market. Secondly, this assessment is useful in markets where none of the players engage in anti-competitive behaviour but the market is not competitive; CMA cannot impose a penalty on the players but can merely propose structural remedies (such as divestments) and/or other behavioural remedies to correct market risks as long as it can justify the consumer welfare associated with the proposed remedies. Stakeholder engagement in the investigation process as opposed to adversarial inquiries aids the authority in addressing the concerns in the sector most effectively. Such sector overhauling remedies may also result in direct qualitative welfare on the consumers and the sector in the form of earlier access to 5G networks and cheaper spectrum availability. It also interesting to note that the European Union is currently exploring the introduction of a market-structure based competition tool in addition to dominance-based assessment as a part of its New Competition Tool
  4. The presence of the sectoral regulator, DoT, and CCI requires robust regulatory coordination. While the Report suggests that the resort to S.21 and 21A of the Act for consultation with other regulators, such consultations are not binding on them. For instance, if one of the TSPs engages in differential treatment with an OTT, it would fall under the jurisdiction of both TRAI and CCI. The Supreme Court’s (SC) verdict in the case of CCI v. Bharti Airtel   was an endeavor in pursuit of regulatory convergence between TRAI and CCI. In that case, the SC observed that TRAI would have the preliminary jurisdiction over the dispute and if the dispute merits a detailed investigation by CCI, it may refer it to CCI. However, there is a possibility that the regulators might have contradictory observations on a given dispute. Such instances result in protracted investigations and the resort to courts for resolution. A unified regulatory consultation system may be introduced wherein TRAI may provide technical guidance to the overall CCI investigation without strictly resigning to the role of regulator-of-first-instance as propounded by the SC. This model of super-regulation wherein several sectoral regulators combine their powers with the competition law authority to prevent duplication of efforts was introduced in Spain. This model was later adopted by Australia and New Zealand. It ensures that the assessment is effective and accurate due to TRAI’s involvement in the investigation. This can also prevent CCI from accepting any voluntary commitments from the parties or passing any order that may be violative of privacy and data protection laws.

 III. Conclusion

The Report is received on a positive note in addressing the competition law concerns in the telecom sector. The observations on privacy concerns and vertical convergence transcend beyond the limited scope of the telecom sector. The Report’s aspiration to converge data protection law, privacy and competition law is particularly noteworthy for its recognition of limitations of competition law in assessing digitally-enabled markets. From an enforcement perspective, the introduction of market-structure-based assessment to such digitally enabled markets may be contemplated to address the inherent structural features that may hinder competition. The introduction of a unified regulatory consultation system between CCI and other sectoral regulators could be a potential step forward in India’s regulatory governance. Such coordination may also be useful in the provisioning sector overhauling remedies under the market-structure-based assessment.


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