August │ 17

C Shanmugam and Manish Gandhi

vs.
Reliance Jio Infocomm Ltd,
DoT, TRAI and BSNL

Through this monthly publication, CUTS International intends to

undertake independent examination of relevant competition cases

in India (on-going as well as decided). The objective is to provide a

brief factual background of the facts of relevant cases, followed by

an analysis of the predominant issues, therein. This publication will

expectantly help readers to better comprehend the evolving

jurisprudence of competition law in India.

The issues have been dealt in a simplistic manner and important

principles of competition law have been elucidated in box stories,

keeping in mind the broad range of viewership cutting across

sectors. The purpose of this publication is to put forward a well-

informed and unbiased perspective for the benefit consumers as

well as other relevant stakeholders. Additionally, it seeks to

encourage further discourse on the underlying pertinent

competition issues in India.

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 Executive Summary
“The explosion of Information and Communication Technologies (ICT) driven by
digitisation has created rapid technological progress and growth. Prices for digital
services are falling rapidly, and the mobile revolution is bringing connectivity to
millions of people in most remote areas”.1 The deployment of 4G connectivity was
one such technological advancement, and companies are fiercely competing with
each other to capture the large Indian market.

The focus of this month’s publication is on the disruption caused by Reliance Jio
Infocomm Limited (Jio), which entered the market of wireless telecom services, and
challenged the incumbents with its aggressive marketing and pricing strategy owing
to its deep pockets.

The Indian telecom market is characterised by a high level of price competition

within the markets for the benefit of consumers. Therefore, high consumer incentives
and loyalty are required to remain relevant in the market. As a new entrant, Jio had
to follow a competitive pricing model and offer heavy discounts in order to penetrate
the market and gain market share.

Notably, the ‘free’ services of voice calls, mobile data, etc. offered by Jio to their new
customers, resulted in corresponding losses for incumbents, who have subsequently
questioned the legality of such pricing strategies, and raised anti-competitive
concerns against Jio. With addition to Telecom Regulatory Authority of India (TRAI),
the Competition Commission of India (CCI) has also been approached by relevant
stakeholders.

The main issue raised by the informants (C Shanmugam and Manish Gandhi) was
that of abuse of dominant position, in the form of predatory pricing by Jio. Upon
detailed investigation into the allegations of the informants, the Commission was of
the view that, Jio being a non-dominant player in the relevant market with the
provision of wireless telecommunication services to end users in each of the 22 circles 2
in India, did not engage in predatory pricing.

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 Competition Commission of India’s Order

Background

The present case3 relates to the allegation of contravention of Section 4 (abuse of

dominant position) of the Competition Act 2002 (Act), by Jio, the new entrant in the
Indian telecom sector. Apart from the informants of this case, similar allegations were
also levied against Jio by Bharati Airtel Limited (previous case). 4

The basic contention of the informants in both the cases was that the by offering free
voice, mobile data and roaming services; apart from other freebies, such as music
and video streaming, to customers – Jio had resorted to predatory pricing, which
amounted to abuse of its dominant position in the relevant market. Relying on the
detailed investigation undertaken by CCI in the previous case, the Commission ruled
in favour of Jio, as it found no prima facie case of contravention of Section 4 of the
Act. Consequently, the matter was closed without further investigation.

Findings of the Investigation in the Previous Case

There were two major issues, which needed detailed investigation:

 Whether Jio held a dominant position in the relevant market or not and
 If it held a dominant position, whether its conduct amounted to an abuse
within the meaning of Sections 4(2)(a)(ii), 4(2)(c) and 4(2)(e) of the Act. Section
4(2) lists the actions/conduct of dominant enterprises, which might be held to
be an abuse. It is important to note that these provisions of abuse of
dominant position require proving a dominant position of the enterprise in
the relevant market as a prerequisite.

Box 1: Allegation of Contravention of Relevant Provisions of the Act

Section 4(2)(a)(ii)
This sub-section of the Act states “directly or indirectly, imposes unfair or
discriminatory price in purchase or sale (including predatory price) of goods or
service”. Predatory price is further explained to be “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”.5

Section 4(2)(c)

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 Box 1: Allegation of Contravention of Relevant Provisions of the Act

This sub-section of the Act states “indulges in practice or practices resulting in

denial of market access in any manner”.6

Section 4(2)(e)
This sub-section of the Act states “uses its dominant position in one relevant
market to enter into, or protect, other relevant market”.7

Relevant Market

Proving a dominant position in the relevant market is a prerequisite for determining

the contravention of the above sub-sections. Therefore, it is necessary to first define
the relevant market, to assess whether the defendant holds a dominant position in
the same. CCI’s judgement in the present case was based on its judgement on the
complaint filed by Bharati Airtel Limited previously on similar lines. Therefore, the
relevant market identified by the Commission was ‘provision of wireless
telecommunication services to end users in each of the 22 circles in India’. Given
below is the explanation:

Relevant product market

The Commission in the previous case analysed the Indian Telecom industry and
defined the relevant product market as “the market for provision of wireless
telecommunication services to end users”.8 While doing so, the Commission
considered the informant’s (Airtel) contention that the relevant product market
should be 4G Long Term Evolution (LTE) telecommunications service as well as the
defendant’s claim of there being no difference between telecom services offered
through 4G, 3G or 2G technologies. The selection of relevant product market was
based on three factors as mentioned below:

1) Data services and voice services9

Even though telecom service providers bundle voice and data services
together in their tariff plans, data consumption can also be on a standalone
basis, i.e. separate from voice services through various devices such as mobile
routers, broadband dongles, etc. This implies that data-only services can be
purchased independent of any voice services.

Further, all telecommunication service providers were considered to be

similarly placed to offer a variety of services designed for data-only device

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 users and voice-enabled device users. Therefore, distinction between these
services was not found to be necessary under the given circumstances of the
case.

2) 4G and 3G technology10
The Commission noted that 4G technology will be operative only in a 4G
compatible device and not in a 3G compatible handset. However, a 3G
network will be operative in a 4G compatible handset. This signifies that
technology evolution is backward compatible, i.e. between a new generation
handset and an old generation network.
Moreover, the Department of Telecommunications (DoT) grants uniform
licences to all telecommunication service providers i.e. Unified Access Licence
(UAL) and it does not differentiate between service providers based on the
technology deployed by them.

3) Price and cost11

Although consumers have to incur additional cost towards buying new mobile
instrument to avail 4G telecommunication services, considering the relatively
lesser life span of mobile handsets and the on-going technological innovation,
constant migration of existing subscribers to upgraded ecosystem is natural
and inevitable over a period of time.
In addition, it is to be noted that, the cost of 3G and 4G compatible mobile
handsets and the tariff for 3G and 4G telecommunication services are largely
similar.

Relevant Geographical Market12

The relevant geographic market in the case was determined to be ‘each of the 22
telecommunication circles in India’, based on the following reasoning:

Spectrum, which is the primary input required for offering wireless mobile
communication services, are allocated to service providers through an auction
process. India has been divided into 22 circles for such purpose and separate
auctions have been conducted for each circle. A consumer is likely to choose
amongst the different options of telecommunication services available in his locality,
and is not likely to avail telecommunication services from any other territory.

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Further, a user calling another user located within the same telecommunication circle,
irrespective of the physical distance between the two, is treated as a local call, and
any call terminating in another circle is considered to be a long-distance call, i.e.
Subscriber Trunk Dialling (STD). In light of these factors, each of the said circles
appear to constitute distinct and separate geographic market.

Dominant Position

Next, the commission was to determine whether Jio had attained a dominant
position in this relevant market. To ascertain the same, the Commission relied on the
following factors:

Competitors competing in the market13

Ever since the telecommunication market was opened to private players, the market
witnessed the entry of a large number of players competing with each other,
resulting in decreasing tariffs and constant improvements in quality and variety of
services.

Besides, the introduction of Mobile Number Portability (MNP), was a pro-competitive

move by the government, resulting in consumers having sufficient choice to shift
from one service provider to another with ease Therefore, consumers were not
dependent on any single telecom operator.

Market shares of the Defendant and its competitors14

As per the TRAI press release dated 17th February, 2017, the market is led by the
Informant (Airtel) with a market share of 23.5 percent followed by Vodafone
(18.1 percent), Idea (16.9 percent), BSNL (8.6 percent), Aircel (8 percent), RCOM (7.6
percent), Jio (6.4 percent), Telenor (4.83 percent), Tata (4.70), Sistema (0.52 percent),
MTNL (0.32 percent) and Quadrant (0.27 percent). The Commission did not find it
appropriate to hold Jio dominant in a scenario where its customers constitute less
than 7 percent of the total subscriber base at pan-India level.

It is notable here that the CCI uses date provided/released by TRAI, which means the
relevant market, as determined by the CCI in this specific case, is the same as the
market determination through a general regulatory process by the telecom regulator.

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Financial strength15

As discussed above, the market comprises of several players ranging from

established foreign telecom operators to prominent domestic business houses, who
are comparable in terms of economic resources, technical capabilities and access to
capital. The Commission noted that financial strength is relevant but not the sole
factor to determine dominant position of an enterprise. Considering comparable
investments and financial strengths of competitors, the success of Jio in managing
large scale investments does not suggest dominant position being enjoyed by it.

Technical expertise/infrastructure16

The extant regulatory requirements of Department of Telecommunications (DoT)

appear to cap the overall and band-wise spectrum holding by telecom operators,
which to a large extent takes care of undesirable concentration of spectrum in the
hands of few operators.

Assumption of narrower relevant product market17

Even if one were to consider 4G LTE services as the relevant product market, Jio is not
likely to hold dominant position in such market on account of the presence of the
Informant, Vodafone, Idea, etc., who derive commercial and technical advantages
due to their sustained and sound business presence in telecom services. It needs to
be appreciated that Jio is a new entrant, who has commenced its business recently
i.e. from September 05, 2016. Hence, Jio was not held to be in a dominant position.

Abuse of Dominant Position

The chief allegation against Jio was with respect to its predatory pricing strategy. As
the precursor to predatory pricing, i.e. a dominant position was not proved; the
Commission concluded that the question of abuse would not arise.

Order of the Commission18

The Commission observed that the Informant has not demonstrated any reduction of
competition or elimination of any competitor, nor has any intent to that effect been
demonstrated. Also, 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

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characterised by the presence of entrenched players with sustained business
presence and financial strength.

In a competitive market scenario, where there are already big players operating in
the market, 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.

Further, the Commission did not find it appropriate to hold Jio dominant in a
scenario where its customers constitute a mere 6.4 percent of the total subscriber
base at pan-India level. In the absence of any dominant position being enjoyed by Jio
in the relevant market, the question of examining the alleged abuse did not arise and
the complaint was subsequently dismissed.

Analysis by CUTS
The Commission’s order seems to be sound, especially considering the contours of
the provisions of the Act. However, at this crucial stage, it is also important to discuss
some underlying issues with regard to the Act, which might be relevant to the
general application of Indian competition law principles in the near future.

Monitoring Quick Market Inroads until the Market Matures/Stabilises

The ‘Commission rightly went as per the Act’, and could not analyse the possibility of
predatory pricing before establishing the dominant position of Jio. The Commission
held Jio not to be dominant due to a low market share of 6.4 percent. However, it
must be duly noted that such market share was captured in a short span of time, i.e.
four months only.

The competition watchdog must maintain a close watch on the developments of the
market, and ensure continuous competition within it so as to maximise consumer
benefit. The main issue posed by this is that new age businesses based on evolving
technologies, are employing strategies like bundled offerings, cross subsidies and
discount pricing.

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Therefore, appropriate elements of market abuse might need to be identified and
provided for in the Act for the future, while at the same time ensuring not to hamper
innovation and using such provisions for intervention sparingly. This could be put
into effect with close collaboration with various sectoral regulators like Telecom
Regulatory Authority of India (TRAI) in this case.

Other Factors Determining a Dominant Position

In order to determine a dominant position, the Commission compared the market

share of Jio (which has crossed 10 percent in June 2017)19 with the incumbents based
on the number of subscribers. Other factors could also been considered for this, such
as: Jio catering to 85 percent mobile data usage in India and becoming the world’s
largest mobile data network,20 with sharp and steady growth in Jio’s net additions to
wireless subscribers each month21. Another important aspect is that Jio is not
catering to the 2G and 3G consumer market.

The Act could take a more ‘economics’ based approach in determining a dominant
position of an enterprise, instead of restricting its reliance on only legalistic reasoning
as such.

The Commission held the view that Jio and the incumbents had access to similar
financial resources and no enterprise had exited the market due to the new entrant.
However, following the zero pricing strategy adopted by Jio, ‘the sector encountered
many mergers and acquisitions, such as mergers between Idea-Vodafone, Airtel
acquiring Telenor and Tikoma, etc. Moreover, several small telecom players are either
going for outright sale or exiting the market by just selling off their spectrum’.22

Though such developments may also be considered to be bringing in efficiency in

the market, the Commission should not be overwhelmed with the small market share
of Jio and the introductory consumer benefits brought forth by it. Caution needs to
be maintained with respect to a possible market failure in the wake of Jio’s disruptive
entry, since drastic structural changes of the market is a consideration in the
assessment of market power in many jurisdictions.

Due consideration needs to be given to the broader market dynamics and overall
profitability of the industry. There seems to be no discussion on market
power/significant market power, which could result from Jio’s ability to grab quick
market share irrespective of competition, due to its abundant financial resources.

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Contravention of Section 4(2)(e)

Since a dominant position of Jio in the relevant market was not established, the
Commission could not examine the contravention of Section 4(2)(e). However, the
move by Jio of selling 4G compliant mobile devices could be considered an exercise
of market power to enter a new product market. Does the prerequisite of
establishing a dominant position for further investigation into market abusive
conduct; need to be replaced with establishing adequate market power?

In light of the accelerating pace of innovation, competition authorities might often

make the mistake of not considering several markets at the same time and the
hidden links amongst them, or the overall eco-system in which different firms
compete, therefore, not being able to see the anti-competitive intent/strategies.

Considering the emerging trends in abusive practices and inability of traditional

enforcement tools to tackle them, the Act may provide for restricting abusive market
conduct which might lead to a dominant position. This could be an appropriate
ex-ante measure for checking attempts of attaining a dominant position through
market abuse.

CCI’s Turf War with TRAI

The entry of Jio has sparked a turf war between CCI and the Telecom Regulatory
Authority of India (TRAI). ‘Market incumbents had approached TRAI for relief against
the aggressive pricing strategy adopted by Jio, before approaching CCI’.23 ‘TRAI
floated a Consultation Paper on predatory pricing in the telecom sector to address
the issue.

In response to the same, CCI has argued that being a market regulator, it is better
placed to look into matters related to predatory pricing than TRAI, which is a
sectorial regulator’.24 It is time for the two regulators to set aside their differences
and the notion of ‘ex-ante competition matters falling in the domain of TRAI, and
ex-post matters like predatory pricing being a part of CCI’s turf’.

As the telecom market continues to experience dynamic competition from the

perspective of all relevant stakeholders, it becomes imperative for the CCI and TRAI
to harmonise their efforts in achieving the common goal of consumer welfare
through maintaining optimum market conditions in the sector.

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 Conclusion
The Indian telecom sector continues to be in a state of flux, and regulatory regimes
will constantly be tested in the future as the market matures. With falling prices of
telecom services are being seen as an indicator of consumer welfare, competition
regimes would need to be mindful of the corresponding effect on the overall market
conditions of the sector.

This might require redefining the scope of their enforcement tools and policymakers
would need to readjust the ethos of competition law provisions in order to keep up
with market advancements.

As pointed out in this edition, while adhering to the provisions of the Act in
determining a case is important, competition agencies also need to be cautious
about anti-competitive practices adopted by enterprises, which try to circumvent the
Act, such as abusive market conduct to attain a dominant position.

CCI and TRAI need to harmonise their efforts to maximise consumer welfare, and
frame policies, which act as ex-ante measures of avoiding market failure, apart from
an optimal ex-post regulatory regime.

Endnotes
1
https://www.gsma.com/publicpolicy/wp-
content/uploads/2016/09/GSMA2016_Report_NewRegulatoryFrameworkForTheDigitalEcosystem_ExecSummary_English.pdf
2
Spectrum is the primary input required for offering wireless mobile communication services and the same is allocated to
service providers through an auction process. India has been divided into 22 circles for such purpose and separate auction
has been conducted for each circle. Also, telecommunication service providers determine circle wise
tariff.http://www.cci.gov.in/sites/default/files/98%20of%202016.pdf
3
CCI Case No 98 of 2016, delivered on 15.06.2017 available at http://www.cci.gov.in/sites/default/files/98%20of%202016.pdf
4
CCI Case No 3 of 2017, delivered on 9.06.2017 available at http://www.cci.gov.in/sites/default/files/3%20of%202017.pdf
5
The Competition Act, 2002, available at http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf
6
The Competition Act, 2002, available at http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf
7
The Competition Act, 2002, available at http://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf
8
CCI Case No 98 of 2016 available at http://www.cci.gov.in/sites/default/files/98%20of%202016.pdf
9
CCI Case No 98 of 2016, Page 6
10
CCI Case No 98 of 2016, Page 7
11
CCI Case No 98 of 2016, Page 7
12
CCI Case No 98 of 2016, Page 7 & 8
13
CCI Case No 98 of 2016, Page 8

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14
CCI Case No 98 of 2016, Page 8
15
CCI Case No 98 of 2016, Page 9
16
CCI Case No 98 of 2016, Page 8
17
CCI Case No 98 of 2016, Page 9
18
CCI Case No 98 of 2016, Page 9
19
http://www.trai.gov.in/sites/default/files/PR_60_TSD_Jun_170817.pdf
20
http://gadgets.ndtv.com/telecom/news/reliance-jio-mobile-network-data-consumption-india-world-1726195
21
http://www.trai.gov.in/sites/default/files/PR_60_TSD_Jun_170817.pdf
22
http://www.financialexpress.com/industry/reliance-jio-impact-after-idea-vodafone-merger-3-more-ma-deals-coming-says-
industry/596202/
23
https://thewire.in/163410/cci-trai-promoting-competition-anti-competitive-practices/
24
http://www.dnaindia.com/business/report-cci-and-trai-should-resolve-turf-wars-by-talking-to-each-2517026

This edition was prepared by Sidharth Narayan, Research Associate, CUTS International ([email protected])

© CUTS International 2017. “Analysis of Competition Cases in India” is published by CUTS Centre for
Competition, Investment & Economic Regulation (CUTS CCIER), D-217, Bhaskar Marg, Bani Park, Jaipur 302
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