DISSECTING THE CCI ORDER IN THE JIO CASE

  • Dhruv Chadha and Manav Gupta

Introduction

Reliance Jio Infocomm Limited (“JIO”), has been subject to much controversy ever since its inception. It has been subject to a number of competition disputes, both as a complainant, as well as an Opposite Party. The most recent order, passed by the Competition Commission of India (“CCI”) found no weight in the allegations made by Bharti Airtel Limited ( “Airtel”).[1]

Airtel alleged contravention of the Act on grounds of anti competitive agreements between JIO and its parent company Reliance Industries Limited, as well as abuse of dominant position by way of; predatory pricing[2], and using dominant position in one relevant market, to enter into another relevant market [3]. None of these allegations were accepted by the CCI. The reasoning behind this, will be analyzed in this article.

Factual Background

On the 22nd of October 2013, the Department of Telecommunications(“DOT”) granted Jio a unified license, allowing it to offer voice telephony services along with data services.[4] On the 5th of September 2016, Jio began offering these services to the public, becoming India’s newest entrant into the telecommunications sector.[5] Initially, Jio offered these services free of cost until the 31st of December( “Welcome Offer”). By the end of this period, it had garnered a sizeable subscriber base of 72.4 million.[6]

Upon expiry of the Welcome Offer, Jio continued offering free services till the 31st of March, christening the new scheme as the “Happy New Year Offer”. This offer was challenged before the Telecom Regulatory Authority of India (“TRAI”) and subsequently the Telecom Disputes Appellate Tribunal (TDSAT) . Both authorities, dismissed the complaints. Consequently, Bharti Airtel(the informant), one of the competitors of Reliance Jio, filed a complaint with CCI. The CCI heard the parties, and published the order on 9th June 2017, finding no prima-facie case against Jio.

Contentions Raised

Bharti Airtel attempted to prove its allegations on a number of fronts. First attempting to establish a narrower relevant product market, Airtel claimed that it was restricted to “providing 4G LTE services of telecommunication”/ “providing 4G LTE services using 4G technology”.

With respect to asserting the existence of a dominant position enjoyed by Jio, it pointed to; Jio’s “unfettered access to the funds of RIL” ;and the fact that Jio was the the largest holder of 2300MHz band, 800MHz band and 1800MHz band( which are the most efficient bands for offering 4G services).

Airtel then attempted to prove predatory pricing by relying on Jio’s conduct of providing the free of cost data and telephony services, below cost, thereby amassing a subscriber base of 72.4 Million as on the 31st of December.

Airtel also contended that RIL had used its dominant position in other markets to enter into the telecom market through Jio, thereby contravening section 4(2)(e) of the Act.

Interestingly, Airtel even alleged the existence of an anti-competitive agreement between Jio and RIL.

The Relevant Market

The CCI found the relevant market to be “the market for ‘provision of wireless telecommunication services to end users in each of the 22 circles in India”. This was arrived at after concluding that the relevant product market was ‘provision of wireless telecommunication services to end users’, and that the relevant geographical market was “each of the 22 circles in India”.

With respect to the relevant product market, Airtel attempted to restrict the scope to the provision of 4G services. This contention was interestingly opposed by Jio, relying on Airtel’s Annual Statement, which itself did not distinguish between 4G, 3G and 2G services. The CCI, while noting the  superiority of 4G over 3G, found the following as factors strong enough to club together under one product:

  • Backward Compatibility of 4G phones with 3G technology
  • Ongoing evolution of technology, and the likelihood of new entrants adopting new technologies.
  • Similarity in 3G and 4G tariffs
  • Granting of a uniform licence to all telecommunication service providers i.e. Unified Access Licence by the Department of Telecommunications ( “DoT”). ( It was further noted that the DoT did not differentiate on the basis of technology)

While the conclusion of the Commission in this regard is arguably correct, certain arguments offered lacked enough reasoning. This may be seen particularly with regard to the argument about “ongoing technological evolution”. The CCI correctly pointed to the backward compatibility of 4G phones to show lack of sufficient differentiation However, in an attempt to mitigate the lack of such “forward compatibility” in 3G services, a possibly counterintuitive argument was made.  The CCI, stressing on the lesser life spans of mobile phones, deduced the likelihood of consumers purchasing newer phones and thus migrating to “upgraded ecosystems”. While this would indeed point to the likelihood of a larger base of consumers with access to backward compatible phones, the migration to upgraded ecosystems, would in fact point to the impending obsolescence of 3G technology in favour of 4G technology. This would in fact favour the argument of 4G being a separate product market. It is submitted, that the lack of drastic practical differences between the two, along with similar pricing and granting of a Unified Licence, are stronger arguments to prove lack of sufficient differentiation.

With respect to the relevant geographical market, the CCI correctly noted the division of the Indian Territory into 22 circles for the purpose of auctioning of spectrum, as well as variance in tariff structures between circles. The CCI noted the fact that all calls originating and terminating within the same circle qualified as Local Calls, and inter circle calls qualified as STD calls. It is submitted, that the pan India spectrum rights enjoyed by Jio, along with the fact that it did not differentiate in tariffs between circles (or charge roaming roaming), deserved at least preliminary deliberation in the order. These could ostensibly favour the geographical market to be pan India, on account of the fact that consumers would now purchase a Jio sim card in any Circle irrespective of the Circle of their residence. 

Dominant Position

The CCI dismissed the contention of the informants, and provided several reasons as to why it did not consider Jio to be in a dominant position.

The primary ground on which CCI rejected the allegation was that in “none of the 22 telecommunications circle, Jio had a market share of more than 7%”. In such a situation, the commission found it unreasonable to determine Jio as a “dominant player” in a market where entrenched players like the informant have been in existence for more than a decade.

The commission also refused to accept Jio’s unfettered access to the funds of RIL as a determining criteria to adjudge dominant position. Rather, the commission found that such an investment was necessary to penetrate a market with established players like the informant.

With regards to Jio’s spectrum holding, the CCI found that the informant also owned the maximum spectrum in the 1800MHz band (which was the most efficient band amongst others). The commission also referred to the regulatory requirements of DOT, which capped the overall and band-wise spectrum holding by telecom operators to avoid undesirable concentration of spectrum in the hands of few operators.

The CCI in its conclusion, repeatedly referred to Jio as a “new entrant” in the market and therefore incapable of holding a dominant position, at least for the present time.

It is interesting to note that the CCI’s verdict on Jio’s dominant position can also be supported by a subsequent CCI order, which was published recently.[7] The CCI was assessing whether Ola was in a dominant position in Bangalore. The CCI, while setting a high threshold for an enterprise to be in a dominant position, found that even a market share of more than 50% did not necessarily make an enterprise “dominant”. An important finding in this case, which directly supports the CCI order on Jio , was that in a particular relevant market, there can be no more than one dominant player. The CCI’s reasoning is primarily based on the fact that section 4(2) of the Act uses the term “an abuse of dominant position” and “an enterprise” (singular form), implying that the intention of the legislature was never to hold more than one enterprise to be in a dominant position. If this finding is to be applied in the present case, then Jio cannot be considered to be in a dominant position, for the simple reason that Airtel would then be excluded from having a dominant position.. Considering the vast market share, reputation and financial strength of Airtel (which comfortably surpasses that of Jio), it would be unreasonable to hold only Jio to be in a dominant position.

Finding no dominant position, the CCI did not find it prudent to determine abuse of dominant position. Airtel’s allegation of contravention of Section 3 of the Competition Act, was not accepted either.

Conclusion

The order passed by the CCI was not without its flaws. It is submitted, however, that the decision reached was sound albeit partially for the wrong reasons. One cannot deny that the telecommunications markets is now moving towards greater economic efficiencies. A pertinent example is the Vodafone-Idea merger, which the CCI has given its unconditional approval to.[8] It may further be noted, that several telecommunication companies have followed Jio’s footsteps in providing cheaper data to consumers. In fact, Airtel itself has introduced a plan priced at Rs. 399, offering a similar bouquet of services.[9] A variety of other similar offers are being offered by Vodafone and Idea as well.[10]Besides the telecom market, Reliance Jio is also planning on rattling the mobile-handset market, by offering the customers a “free” feature phone, bundled with a host of 4g plans.[11]The 4g handset can be bought by depositing a sum of Rs. 1500, which will be returned to customers after 3 years. Meanwhile, the TDSAT has also scheduled a hearing on 18th August to hear Airtel’s complaints against Jio.[12]

Considering the current volatile condition of the telecommunication market, one can expect a plethora of competition cases to come up in near future. As the stature of Jio grows day by day, one can also expect the CCI to adopt a different approach in assessing future cases of anti-competitive behaviour against Jio.

[1] http://www.cci.gov.in/sites/default/files/3%20of%202017.pdf

[2]The Competition Act §4(2)(a)(ii).

[3]The Competition Act §4(2)(e).

[4]http://www.firstpost.com/business/reliance-jio-gets-unified-licence-to-offer-pan-india-voice-data-services-1186673.html

[5]http://economictimes.indiatimes.com/news/company/corporate-trends/mukesh-ambani-unleashes-reliance-jio-from-september-5-to-december-31-it-will-be-free-for-all/articleshow/53957248.cms

[6]http://www.business-standard.com/article/companies/reliance-jio-subscribers-at-72-4-mn-at-dec-end-poi-issues-continue-ril-117011601284_1.html

[7]https://barandbench.com/wp-content/uploads/2017/07/2017.07.19-CCI-Order-in-Case-Nos.-6-74-of-2015.pdf

[8]http://economictimes.indiatimes.com/news/company/corporate-trends/cci-gives-unconditional-nod-to-vodafone-idea-merger/articleshow/59740614.cms

[9]http://www.business-standard.com/article/companies/to-counter-jio-airtel-s-rs-399-plan-offers-1-gb-data-a-day-for-70-days-117041400371_1.html

[10]http://www.financialexpress.com/industry/technology/vodafone-4g-plan-rs-244-70gb-1gb-reliance-jio-airtel-idea-cellular-tariff-plans-offer/784049/

[11]http://www.firstpost.com/business/reliance-offers-jio-phone-virtually-free-mukesh-ambanis-big-disruption-could-change-telecom-market-completely-3840629.html

[12]http://economictimes.indiatimes.com/news/economy/policy/tdsat-hearing-on-reliance-jio-free-offer-case-on-august-18/articleshow/59755150.cms

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