The Competitive Dynamics: Analysing The CCI Decision In The Reliance Jio Case

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 sustain the operation of a single entity that so swiftly reduced the competitiveness of all other market-participants for a sustained period of time. While domestic behemoths like Airtel, and international conglomerates like Vodafone were able to write-off significant losses for their financial years, the impact upon middle-business was debilitating – resulting in a situation where ‘small players simply have to go out of the market and the medium players will have to either bow down or wind up their telecom services.’

Conclusion

Few can deny the indelible impact that Jio has had upon the telecom sector in India – whether through the drastic increase in data penetration in Urban India, or in the form of the drastically reduced prices of telecom services across the country. However, it is in the context of competition law where Jio’s legacy could prove most significant. As a relatively new and developing but increasingly crucial area of practice, competition law in India must keep up with the rapid expansion of investigation in anti-competitive practices in other jurisdictions – the imposition of a 2 billion dollar fine upon Google by the EU being a relevant example. It would not be a stretch to one day see a company like Amazon offer entirely free delivery of goods below Rs.500 to all consumers, or Google offering to build optic-fibre cables free of cost for all households in a particular city in return for all customers being denied access to all other search engines if Jio is legally permitted to continue to offer services at unsustainable prices. In an age of accelerating conglomerates, the law must develop at the same pace, or risk the spread of monopolistic tendencies.

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