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TRAI looks to regulate promotional offers, after the Jio issue

In what is a “shutting the door after the horse has bolted” kind of move, India’s telecom regulator TRAI is examining the need to regulate promotional offers from telecom operators, in a consultation paper titled “Regulatory Principles of Tariff Assessment” (pdf). It also looks at redefining the definition of a promotional offer by looking at various features that constitute a promotional offer, how these offers can be ‘predatory’ and ‘discriminatory’, and ways to curb ‘anti-competitive’ pricing.

The consultation paper comes a time when telecom operators including Airtel, Idea and Vodafone are fighting Reliance Jio in court, alleging that its free data and voice offers are ‘predatory in nature’. These operators have also named TRAI in their petitions claiming that the regulator is “perpetuating illegality” by allowing Jio to “game” the interconnection regulation. Reliance Jio initially launched in September last year, providing free calls and data (up to 4GB per day) under a promotional offer named ‘welcome offer’, which had a validity until December 2016. In December last year, Jio extended the free data and calling offer up till March 2017, under a new pack named ‘Happy New Year Offer’. The new pack cut down free data browsing up to 1 GB per day and allowed users to make recharges starting at Rs 149.

TRAI later clarified in the court that Jio’s promo offers did not violate any regulations stating that Jio’s initial “Welcome Offer Pack” which expired on December is different from the currently active “Happy New Year offer” which has a Fair Usage Policy of 1GB per day. Meanwhile, rival operators have lost a significant amount of subscribers while some reported a steep fall in revenue during the last two quarters .

Why TRAI is looking at redefining promotional offers

Currently, ‘promotional offers’ offered by telcos are perceived by TRAI as a method to “incentivize their subscription and increase subscriber bases.” Such offers are viewed differently from regular tariff offers since it provides free usage to subscribers for a limited period of time. As per current regulations, a telco can offer promotional offers up to a “maximum of 90 days from the date of launch”.

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The regulator adds “that though the concept of ‘promotional offer’ is in vogue since last 15 years, unlike regular tariff plans, its features are not that well defined.” The regulation, however, does not mention how promo offers can be offered, whether they can be discriminatory or predatory in nature, and whether there is a need for restrictions on promo offers launched by telcos holding a large market share.  Therefore, TRAI is discussing the need to include the following terms/clauses under tariff regulations:

  • Non-discrimination: As per current rules, a telecom operator cannot “discriminate between subscribers of the same class”. But the regulation does not specify what constitutes a “fair and non-arbitrary classification”. For example, some telcos may offer free data to only new subscribers or at special rates (differing from normal packs). “However, since these special rates are not available to the existing subscribers, it can also be termed as discriminatory,” TRAI added. Some offers can be limited to 4G users only, and can also be seen as “discriminatory”.
  • Need to differentiate between sub-markets: Telcos differentiate between 2G, 3G or 4G depending upon the kind of spectrum they hold and current regulations are “service and technology neutral” and does not specify which spectrum band can make up a particular technology (3G or 4G). TRAI added that “from a supply side, 4G services constitute a separate market” and that there is a need to “delineate (split) appropriate relevant markets for the purpose of analyzing the effects of pricing practices of TSPs (teclos).”
  • Need to assess definition of ‘dominant market player’: Current regulations state that  “a service provider holding a share of at least 30 % of total activity in a licensed telecommunication service area” can be considered as a dominant market player. However, as the telecom industry evolves “there is a need to undertake a comprehensive review of the potential anti-competitive practices that could harm the sector and its consumers,” added TRAI. The regulator looks at defining what can be termed as anti-competitive and appropriate “regulatory tools” to curb such practices.
  • Definition of ‘predatory pricing’ under current tariff regulations: TRAI said that ‘predatory pricing’ can be referred as “abuse of dominant position by an enterprise (or a telco)” by pricing a product or a service lower than prevailing market rates. However, since the telecom market is segmented into landline, wireless, broadband, kind of technology used etc., a uniform definition of what constitutes ‘predatory pricing’ is required. The regulator points out that “the term non-predation has not been specifically defined in the TTO (telecom tariff regulations)” and that there is a need to “prevent anti-competitive conduct in the context of interconnection and tariff setting”.

Questions for consultation

The regulator has issued the following questions for consultation. Comments can be forwarded to advfea1@trai.gov.in by 24th March 2017.

Question 1: Do you think that the measures prescribed currently are adequate to ensure transparency in the tariff offers made by TSPs? If not, then, what additional measures should be prescribed by the TRAI in this regard? Kindly support your response with justification.

Question 2: Whether current definition relating to “nondiscrimination” is adequate? If no, then please suggest additional measures/features to ensure “non-discrimination”.

Question 3: Which tariff offers should qualify as promotional offers? What should be the features of a promotional offer? Is there a need to restrict the number of promotional offers that can be launched by a TSP, in a calendar year one after another and/or concurrently?

Question 4: What should be the different relevant markets – relevant product market & relevant geographic market – in telecom services? Please support your answer with justification.

Question 5: How to define dominance in these relevant markets? Please suggest the criteria for determination of dominance.

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Question 6: How to assess Significant Market Power (SMP) in each relevant market? What are the relevant factors which should be taken into consideration?

Question 7: What methods/processes should be applied by the Regulator to assess predatory pricing by a service provider in the relevant market?

Question 8: Any other issue relevant to the subject discussed in the Consultation Paper may be highlighted. 

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