The Predatory Pricing case against Reliance Jio: Did CCI Miss an Opportunity to Rejuvenate Indian Telecom Sector?
In June 2017, CCI passed an order clearing Reliance Jio Infocom Limited (“RJio”) of all the charges of contravening Section 3 and 4 of the Competition Act, 2002 (“Act”). The Informant, Bharti Airtel, alleged in its complaint that RJio’s act of offering free services since its inception under one offer or other, amounts to predatory pricing, which is thereby in contravention of Section 4(2)(a)(ii) of the Act. It further alleged that the company used its financial strength in other markets to enter into the telecom market through RJio, thereby contravening Section 4(2)(e) of the Act.
CCI in its order, rejecting all the allegations of Bharti Airtel, stated “…in the absence of any dominant position enjoyed by RJio in the relevant market, the question of alleged abuse does not arise…” The Commission further stated 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. It 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.
Predatory pricing is a phenomenon of driving other players out of the market, by offering goods or services at a price lower than the cost. In the case of MCX Stock Exchange v. National Stock Exchange of India Limited & Ors., the Commission laid down that in order to achieve the recoupment requirement of a predatory pricing claim, a claimant must meet a two prong test: first, demonstration that the scheme could actually drive the competitor out of the market; second, there must be evidence that the surviving monopolist could then raise prices to consumers long enough to recoup his costs without drawing new entrants to the market. RJio entered the telecom market in September, 2016 and as per TRAI’s data, Bharti Airtel, Idea and Vodafone together accounted for around 75 per cent of the total gross revenue and 61 per cent in terms of subscribers. By January 2017, Jio’s subscriber base had grown to 72.4 million. The Commission had based its decision on this data that RJio was not a significant market player, and therefore any predatory pricing investigation could not be initiated against it.
According to Section 4 of the Competition Act, 2002, an entity could be said to indulge in predatory pricing only when it is said to enjoy a “dominant position” in the “relevant market”. A restricted interpretation of the same would suggest that no new entrant can be probed for predatory pricing, even though it may have deep pockets to withstand lower tariffs thereby forcing other market players to exit, just on the account it is not enjoying dominant position. This mechanical way of interpreting Section 4 has driven CCI’s decisions in the past, thereby exonerating a number of entities who were allegedly hampering the market by anti-competitive activities. For instance, the Commission had investigated similar matters against Uber and Ola as well as against e-commerce websites such as Flipkart and Amazon, after they started offering huge discounts to customers. However, all of them were vindicated because of the fact that none of these companies were having a “dominant position” in their respective markets.
In another blow to other telecom players, TDSAT, an appellate tribunal for deciding telecom disputes, rubbished the allegations of predatory pricing on similar grounds of RJio not being a “significant market player”. A significant market player, according to the Telecommunication Interconnection Usage Charges Regulations, 2003 means a service provider holding a share of at least 30 per cent of the total activity in a licenced telecom service area. “Activity” here could include subscriber base, turnover, switching capacity or volume of traffic. In light of these considerations, RJio was not qualified as a significant market player because of it being a new entrant in the market and was therefore acquitted of the predatory pricing allegations. The Appellate Tribunal also held that RJio’s promotional offers did not violate the prescribed 90 day limit for such offers, which it had allegedly continued for over 6 months under one name or other. This was because, the telecom tribunal found that, the two offers which were consecutively given out were largely different from each other and that the latter “Happy New Year” offer was not an extension of the “Welcome Offer”. However, many sector analysts had contended that RJio was let loose as the both these offers were essentially the same “free voice and data” offers with minuscule changes.
A recent report from The Caravan argues how RJio’s rock bottom data pricing offers have forced the competitors to slash their tariffs significantly to the extent of incurring heavy losses. Airtel had reported a net loss of 54 per cent in the year succeeding RJio’s launch, a position which hasn’t changed much even now. The result of this, the report claims, has been the rising levels of corporate debt that will be difficult to pay off. By March 2018, India’s telecommunication companies had a cumulative debt of over $75 billion out of which only $27.6 billion was in revenue. RJio’s entry has prompted a wave of mergers and combinations resulting in fewer market players and a subsequent collapse in competition. At the end of 2015, when RJio was formally launched, India had nine private sector wireless providers operating in the market. Today there are effectively three – Bharti Airtel, Vodafone-Idea and Reliance Jio. RJio is thus no more a fresh entrant in the market and has in fact gone on to hold about one-third of the country’s broadband subscriber base and about 85 per cent of the market in terms of mobile data traffic. This raises serious questions on the approach adopted by both the bodies, the Commission, as well as the Appellate Tribunal.
Economic and Political Weekly recently reported that RJio has been able to take advantage of ambiguous and lax regulatory processes and systems of oversight. While the overall tactics deployed by the community are for sure predatory, pricing is something on which the regulatory bodies have to take a call. In light of such a coverage, a question is worth asking - If CCI was able to see through the long term impacts of RJio’s pricing on the Indian telecom sector? While the answer may not be clear, it warrants a second look by the Commission given that telecom sector forms the backbone of the Indian economy.