Reliance Jio has recently emerged as a great competitor to the other telecom groups in India. From the time of its inception, it is has been alleged that the company is going against the Competition policy of India. The main issue at hand revolves around the pricing policy of Jio, which provides data and calling services at minimal rates. Further, they have also come up with several offers like “Dhan dhana dhan” and “Happy New Year”, which have enabled them to attract 100 million subscribers in just 7 months since their inception[1]. These schemes have hampered the telecom sector to a great extent. As a result, companies such as Bharti Airtel , Idea and Vodafone have had to cut down their rates since Jio schemes have significantly threatened their market shares. These companies have accused Jio of using the concept of predatory pricing. While the case brought forward by Bharti Airtel against Jio before the Competition Commission of India gave these allegations legitimacy, Bharti Airtel has not been successful in winning the case.
Reliance Jio formation and competitors reactions:
The formation of the company dates back to 2010 BWA (Broadbrand Wireless Access)/ 4G auction, wherein a company named IBSPL acquired the 20 MHz BWA spectrum for all 22 telecom circles[2] in India. This spectrum had been acquired at a final price of `12,847.44 Crores out of the total reserve price of 1750 Crore[3], which was 5,000 times its net worth. This company was later occupied by Reliance industries and was renamed as Reliance Jio Infocomm Ltd. The telecom companies who wished to provide services at a pan-India level were required to buy spectrum blocks in each of the 22 circles. The auction of 3G services allowed the companies to provide both calling and data services whereas in case of 4G auctions, companies were allowed to provide data services only. The types of companies in possession of licenses from any of the above categories are listed as- Cellular Mobile Telecom Services (CTMS), Internet Service Provider (ISP) and Unified Access Service (UAS). Only these types of companies were allowed to apply for the auction and IBSPL was one of them. IBSPL was also able to match the financial requirement for bidders with an earnest money deposit – worth 252.2 Crore from Axis bank, which was approximately 100 times its net worth[4]. Thus IBSPL managed to secure a dominant position in 4G auction. Subsequently, it was acquired by Reliance industries. The problem involved herein was that IBSPL had an ISP license when it had applied for auction, that is, it was allowed only to provide data services. However in 2012, TRAI on the recommendation of DoT, (Department of Telecommunication) allowed companies to acquire different licenses, or switch their licenses. In the light of this allowance, Reliance Jio acquired the UAS license, which allowed it to provide both data and calling services.
Commission’s contention
The primary concern of major telecom companies such as Bharti Airtel, Idea and Vodafone was that Reliance Jio was providing services at zero or minimal rates since its inception. Reliance Jio is the only telecom operator in India to announce free services for voice callsandSMS with respect to local and roaming schemes. Such services are offered without taking into account the regulatory requirement of “calling party pays”, wherein Reliance Jio is required to pay an interconnection charge of 14 paisa per minute for calls by its subscribers to customers of other networks[5]. However, the company’s offers amount to a zero pricing policy and hence indicate that Reliance Jio’s pricing policy is that of predatory pricing. This interface is despite the fact that TRAI has recently decreased the interconnect usage charge (IUC) to 6 paise per minute from the current rate of 14 paise and has resolved that the charge shall be brought down to zero paise after 2020.[6]
Reliance Jio is the only telecom operator in India with fully data-centric services which are, entirely based on the Voice over Long Term Evolution (VoLTE) technology, which allows voices to be transferred over an Internet Protocol (IP) network at a much faster speed in comparison to traditional networks which use 2G and 3G technologies.[7] However, in the case Bharti Airtel limited v. Reliance Industries limited and Reliance Jio infocomm limited the Competition Commission has conceded to the fact that there is no difference in 2G, 3G and 4G services. Further, it has observed that since Bharti Airtel, Idea and Vodafone have a subscribers’ base of approximately 60%,[8] Reliance Jio cannot be held to be a sole dominant in the market. Furthermore, Reliance Jio has directly entered into 4G market and, since many people do not have mobile sets which are compatible of 4G technology, it would be extremely difficult for Reliance Jio to capture the whole telecom industry.
The Commission has also held said that Jio is not violating section 4 (2) (a) (ii) or section 4 (2) (e)[9] , since its market share is 6.4%, which does not satisfy the threshold of a dominant position.[10] Additionally in the case, Reliance industries has contended that it is merely supporting the new entrant i.e. Jio and is not using its financial strength in other markets to gain a dominant position. The concept of predatory pricing demands that the company must hold a dominant position and later a monopoly. This threshold has not been fulfilled by Jio in the instant case. Further, entry of Jio has not eliminated the rivals from the market. Rather, it furthered the spirit of competitiveness in the market. The current case of Jio is analogous to that of Uber, where the Commission had held that Uber’s pricing policy was not inconsistent with section 4 of Competition Act, 2002, as the company’s dominant position could not be established.
Economic aspects and Market standing of Reliance Jio
The accepted principle of predatory pricing is that the said producer or company first offers the goods and services at a price below the cost price and later when it attains a monopoly it increases the prices, thus recouping its losses. But in reality, it is quite difficult for a company to adopt predatory pricing as its strategy, as firstly, even after attaining monopoly, the company cannot increase the prices of its services or products exorbitantly, as it would be difficult for the company to recoup its losses[11]. Further, the MR (Marginal Revenue) curve can be studied in collaboration with the cost curve i.e. MC (Marginal Cost) curve. In case the producer or firm wants to achieve equilibrium, it can produce goods only when MC is less than MR, since this condition is necessary to earn profits. This means that even though the firm has attained monopoly through predatory pricing, it cannot maintain its position for a long period. However, if the firm wants to charge a higher price, then the burden of the corporate tax imposed on it will shift on consumers or buyers.[12]
RELIANCE JIO – ADDING TO THE PERPLEXITIES OF COMPETITION COMMISSION AND TELECOM SECTOR
Reliance Jio’s debt to equity ratio i.e, 1.75 times and current ratio 0.17 (approximately according to its balance sheet), depicts that its creditworthiness is not much affected and that it is doing well as a startup. Recently, Jio was caught in a controversy due to multiple cases of data breach among 100 million customers.[13] Further, it had also entered the battle field against other telecom sector companies by filing a case of cartelization against them. The CCI, after hearing the case, had directed the Director General to investigate the matter. This decision was highly mooted as when the other telecom sectors had urged the Commission to start an investigation against Jio, it had not acceded to their requests. However, in the case filed by Reliance Jio, the Commission had ordered an investigation into the allegations of cartelization. The Bombay High Court has recently quashed the order of investigation passed by CCI stating that the Competition Act, 2002 cannot be used to interpret the contract conditions/policies of the telecom Sector since they arise out of the Telegraph Act and the TRAI Act.[14]Thus, Reliance Jio, with its predatory behavior is paving its way in telecom industry. However, as explained above, it is difficult for it to have a monopoly in the market.
Conclusion and suggestions
The above analysis of the case of Reliance Jio vis-a-vis of predatory pricing and Jio’s dominant position has brought forth a plethora of questions. One of the most important questions sought to be answered is the abuse of dominant position under S.4 of the Competition Act 2002,[15] where abuse of dominant position is defined and discussed.
Thus, the following points contain a few suggestions on the reformation of the concept of Abuse of dominant position and predatory pricing.
The Competition Act of India limits the mode of abuse of dominant position[16] unlike the European competition act,[17] which does not restrict the said mode. Further S.18 (1) of U.K. Competition Act[18] specifies that the list of acts of abuse are merely illustrative of abuse of a dominant position and that this list is not exhaustive.[19]Whereas, the present stance on abuse of dominant position in India is quite different, as there is an exhaustive list containing factors for determining the dominant position of a company under s. 19(4)[20]. In Jio’s case, the abusive use of VoLTE technology can be taken into consideration as a factor.
Further, S.19 (4)[21] of the Act contains various factors which the Commission takes into consideration, while deciding on the matters of dominant position. However, while deciding upon the dominant position in the case of Reliance Jio, the Commission had limited its discussion to the market share of the firm. The factors regarding relevant geographic market and relevant product market as listed, under Sections 2(s) and 2(t) of the Act, [22] were not accorded much importance. Additionally, the Commission had restricted the scope of its decision and had not distinguished between 2G, 3G and 4G services[23].
The Penalty stated in Act must be increased from the current rate of10%[24]. As companies such as Jio, which is supported by Reliance Industries group, will hardly get affected by a penalty of 10%.
Defense of consumer welfare- The Ultimate yardstick of competition policy is the satisfaction of the consumer[25]. Thus, if a firm or a producer sells goods below the cost price for the benefit of the consumers, the defense of consumer welfare cannot be taken if a case of predatory pricing is brought under the current scheme of the Competition Act.
There has been immense dispute as to which category of cost (average cost, average variable cost, marginal cost etc.) must be considered while determining predatory pricing. It is suggested that the most apt solution to this problem is to use an average variable cost for this purpose. While this has been mentioned in the The Competition Commission of India (Determination of Cost of Production) Regulations, 2009,[26] Section 4 of the Competition Act gives discretion to the Commission to consider other costs as well, depending on the circumstances of each case. Thus, it is suggested that a stricter rule must be adopted.
Additionally, it is suggested that the Commission must adopt an Inquisitorial approach to determine the abuse of dominant position, as opposed to an adversarial approach.
This post has been authored by Diksha Dubey, B.A.LL.B.(Hons.), 2nd Year student, MAHARASHTRA NATIONAL LAW UNIVERSITY, Nagpur.
[1]Pushkar Singh and Kashish Sinha, ‘Indian Telecom Market Post Advent of Jio: An Analysis of the Spate of Recent Merger within Telecom Sectors’ (2017) PL 82.
[2] Telecom circles – communication of mobile phones occurs through electromagnetic waves of radio frequencies (rf) that lie in the range of 3 kz (kilohertz) to 300 (gigahertz). Thus to maintain the network they are allocated blocks of frequencies (ranging from 5 megahertz to 20 megahertz usually) in the range by the government. Thus for facilitating the allocation, a public auction takes place for which country is divided into telecom circles.
[3]Paranjoy Guha Thakurta, ‘A Call for Review Supreme Court’s Decision on Reliance Jio’ 2016 51 (24) EPW.
[4]Guha Thakurta Paranjoy ,‘The `19,000 Crore Mystery: How the CAG Figure for ‘Undue Benefit to Mukesh Ambani’s Reliance Jio Shrank’ (Caravan Magazine, 31 May 2015 ) <www.car6avanmagazine.in/vantage/4g-19000-crore-mystery-cag-fi gure-undue-benefit-mukesh-ambanis-reliance-jio-shrank> accessed 22 July 2017..
[5]Supra, note 2 at p.84.
[6] Gulveen Aulakh, ‘Airtel Vodafone, Idea to move court on IUC cut’ Economic Times (India, 20th September 2017) <http://economictimes.indiatimes.com/news/company/corporate-trends/airtel-voda-idea-to-move-court-on-iuc-cut/articleshow/60757548.cms> accessed 25th September 2017.
[7] Jai Bhatia and Aditi Rao Palepu , ‘Reliance Jio – Predatory pricing or Predatory behavior ?’ (2016) 51 (39) EPW.
[8]Bharti Airtel limited v. Reliance Industries limited and Reliance Jio infocomm limited [2017] SCC CCI 25, p. 6 para 18.
[9] Competition Act 2002, S 4 (2) (a) (ii) , S 4 (2) (e).
[10]Supra, note 9, p.6 para 18.
[11] Joseph F. Brodley, ‘Predatory Pricing: Competing Economic Theories and the Evolution of Legal Standards’(1981) 66 (4) CLR 738, 741 < www.jstor.org/stable/40843341 >accessed 25th September 2017.
[12] A. Koutsoyiannis, Modern Microeconomics, (2nd ed. , Macmillan Press ltd., 1979 ).
[13]Khalid Anzar , ‘Reliance Jio still a second option for 82% telecom users’ Business Standard( India,20 June 2017 ) <www.business-standard.com/article/companies/reliance-jio-is-still-a-second-option-for-82-telecom-users-117062000389_1.html> accessed 22 July 2017.
[14] Nitish Kashyup, ‘Reliance Jio Vs Other Telcos: Bombay HC Terms CCI Order Illegal, Says Every Majority Decision Is Not ‘Cartelisation’ …’ (Livelaw, 22nd September 2017) < http://www.livelaw.in/reliance-jio-vs-telcos-bombay-hc-terms-cci-order-illegal-says-every-majority-decision-not-cartelisation-read-order/> accessed 25th September 2017.
[15] Competition Act 2002 ,S 4(2) (e).
[16] Competition Act, 2002 ,S 4 (2) a to e.
[17] Competition Act 1998.
[18] Competition Act 1998 (U.K.) , S 18(1).
[19] T. Ramappa, Competition law in India, (3rd ed., Oxford University Press, 2014).
[20] Competition Act 2002 , S 19(4).
[21] Supra 21.
[22] Competition Act 2002, S 2 (t) , S 2 (s).
[23] Competition Act 2002, S 26(1).
[24] Competition Act 2002 S. 27(b)
[25] Emaneula Arezo , ‘Is there a role for market definition and dominance in an effects based approach?’ in Mark Oliver Mackenrodt, Beatriz Conde Gallege and Stefan Enchelmaier (eds.), Abuse Of Dominant Position: New Interpretation, New Enforcement Mechanisms?, (1st ed., Springer Publication Company, 2008) .
[26] The Competition Commission of India (Determination of Cost of Production) Regulations, 2009 < http://www.cci.gov.in/sites/default/files/regulation_pdf/cost_pro.pdf> last accessed on 24th February 2018.
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