Jio: An Illusion in the Telecom Industry

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 its operations with controversial “Zero Pricing” strategy and continued with the same even after TRAI ordered to stop it after December 2016. Jio continued to offer services at no cost till March 2017, violating the order of TRAI. Moreover, Jio violated the basic requirement of not providing tariff which is lower than Interconnect User Charges (IUC) as decided by TRAI in its framework titled ‘The Telecommunication Interconnection Usage Charges (IUC) Regulation, 2003 (1 of 2003).’ In 2004, the regulator modified the earlier framework, and introduced distance based IUC, which was later freezed at 20 paisa per minute, and in 2015, reduced to 14 paisa per minute.[7] Moreover, the CCI has repeatedly held that the essence of predatory pricing is pricing below one’s cost with a view to eliminating a rival.[8] The whole strategy of Jio of first providing full services at zero pricing for a substantial amount of time and then violating the order and framework of TRAI makes clear its intention to abuse its position in the market.

These strategies resulted in Jio capturing a large chunk of market in 4G category in a very short span of time and even leaving behind the main player “Airtel” in this category. Use of power in this way to throw other competitors out of market or harming them to a great extent can be termed as abuse of the dominant position in the market.

Conclusion

Jio made its every user happy for a short period of time, but few know the price they will have to pay in future to be with Jio. The uncanny pricing strategy of Jio has become a classic case of predatory behaviour that eventually escaped charges of predatory pricing strategies. CCI in its order favoured Jio by saying that Jio is not a dominant player, totally keeping itself secluded from the fact that its dominance should be judged only in the 4G sector and not in the whole telecom sector. All products or services considered interchangeably or substitutes by the consumer by reason of characteristics of the product or services their prices and intended use, constitute the relevant market share.[9] Characteristics or price of 3G and 4G cannot be considered interchangeable in the real sense. Further, even if we assume for the moment that Jio was not at all anti-competitive in the way it initially panned out, its recent decisions to price 24 GB data at a mere Rs.149 and release 4G-compatible smart-phones at a giveaway price of Rs.500 will raise competition law concerns in the market. It does not take some rocket science to conclude that having gathered enough share in the market, it will be able to repeat its great escape once again.

[1] Himanshu Sharma & Mertand Nemana, ‘India: Predatory Pricing: A Synopsis of the Indian Telecom Sector’ (Mondaq, 15 March 2017) <http://www.mondaq.com/india/x/576894/Antitrust+Competition/Predatory+Pricing+A+Synopsis+on+the+Indian+Telecom+Sector> accessed 7 July 2017.

[2] Abir Roy, Competition Law in India, (2nd edn, Eastern Law House 2014) 241.

[3] Hoffman-La Roche & Co. AG v. Commission of the European Communities [1979] ECR 461.

[4] Mobis Philipose, ‘Will Reliance Jio’s latest free offer salvo force Competition Commission’s hand? (Livemint, 3 Apr, 2017) <http://www.livemint.com/Companies/cD87baoZA1SZgGQGsLXd6J/Will-Reliance-Jios-latest-salvo-force-competition-watchdog.html> accessed 9 July, 2017.

[5] Shree Gajanana Motor Transport Company Limited v. Karnataka State Road Transport Corporation [2016] Case No.85, Exclusive Motors Private Limited v. Automobili Lamborghini S. P. A. [2012] Case No.52, Ravi Beriwala v. Lexus Motors Limited and Another [2016] Case No.79.

[6] France Telecom SA v. Commission of the European Communities [2007] ECR II-107.

[7] Mohul Ghosh, “Can Reliance Jio legally offer free voice calls? Rule says tariff cannot be below interconnect charges!” (4 Jan 2017) <http://trak.in/tags/business/2016/10/14/reliance-jio-free-voice-calls/> accessed 9 July 2017.

[8] In re: Johnson and Johnson Ltd. [1998] 64 Comp Cas 394.

[9] T. Ramappa, Competition Law in India, (Oxford, 3rd Edition) 166.