Bharti Airtel has lost a legal case against Reliance Jio, filed with the Competition Commissions of India (CCI). Airtel, in its complaint to CCI, alleged that Jio was involved in predatory pricing and used its dominant position in other markets to enter and penetrate the telecom market. Note that Jio’s parent company Reliance Industries Limited (RIL) has units in petroleum, yarn/polymer production, and other manufacturing and production industries.
The CCI, however, ruled that it doesn’t find Jio violating Section 4 (2)(a)(ii) and 4(2)(e) of the Competition Act, 2002 which deals with predatory pricing and dominant position. The commission added that it dismissed Airtel’s complaints against Jio after no prima facie evidence was presented for most of the complaints. Meanwhile, in May this year, CCI had initiated an investigation into alleged anti-competitive practices committed by Airtel, Idea, Vodafone India and lobbying group COAI for apparently trying to block Reliance Jio’s entry into the market
As per Airtel’s complaint to CCI, Infotel Business Services Private Limited, which is now fully owned by Reliance Industries Limited (RIL), won the spectrum auctions in 2300 MHz (meant for LTE) on a pan-India basis in 2010. RIL acquired full control of Infotel, which held only an ISP license at that time. RIL then renamed Infotel to ‘Reliance Jio’ and subsequently migrated Infotel’s ISP license meant for providing only broadband into a UASL license meant for providing voice and data services back in 2013. RIL has invested close to Rs 1.6 lakh crore into Jio, the complaint claimed.
- Dominance in the 4G broadband segment: According to Airtel’s complaint, Jio holds a dominant position in the 4G segment, less than a year after commercial launch. Jio’s virtual network/spectrum sharing tie-ups with Anil Ambani-led RCOM, and both operators’ 4G spectrum holding were the reasons cited by Airtel for Jio’s “dominant position”. RCOM holds 1107.8 MHz of 4G LTE spectrum, while Jio holds a dominant share of spectrum in all 4G bands including 2300MHz (50% share), 800MHz (56%), and 1800MHz (28%), according to the complaint. Jio has 2.43 lakh base station, which is 18% of the total base station installed by the industry and 66% of overall 4G LTE base stations. Jio also has over 72 million 4G broadband users, which is the largest wireless broadband user base in India, Airtel noted.
- Free offers are predatory in nature: Both Jio promo packs—Welcome Offer (Sep ’16 to Dec ’16) and Happy New Year offer (Post Jan ’17)—are predatory in nature, the complaint said. Telcos are currently paying 14 paisa per minute for outgoing calls from its network to other operators’ network. Jio’s unlimited calling offer is predatory since it “amounts to zero pricing as well as ‘free voice calls for life’…these clearly demonstrate that OP-2 (read Jio) is providing telecom services below its average variable cost with the sole intention of eliminating competitors,” Airtel added in its complaint. Free unlimited offers are not measures to meet competition since no other telcos offered such “free of cost or below cost” calling packs to networks of other operators, the complaint said.
- Intention to create monopoly: Airtel alleged that RIL and Jio “have entered into an agreement whereby OP-1 (read RIL), being in position of holding unlimited fund and resources, has allowed unfettered access of its funds to OP-2 (read Jio)…” “Jio can continue to provide services below cost, and charge tariffs which are predatory in nature with the intent of eliminating competition, such that the subscribers of Jio are not charged a penny until Jio creates a monopoly or near monopoly in the market,” Airtel added.
The Assessment and Ruling
In order to understand whether Jio’s free offers violated predatory pricing and anti-competitive last under Section 4 of the Competition Act, it first needs to be understood whether Jio holds a dominant position in the telecom market. As per its assessment:
1) What is the relevant market that both Airtel and Jio competes in?
The relevant market is “wireless telecom services”. Jio and Airtel both offer wireless telecom services and the focus of the case will be on this segment only, CCI said.
-According to CCI, 4G services are “superior” to 3G standard, but most features of 4G (like VoLTE) will be available to 4G support handsets only. But a 3G service is always “operative” on a 4G handset. Any new entrant in the market is likely to adopt latest standards and later upgrade to new standards from time to time. Additionally, the Department of Telecom (DoT) does not differentiate service providers on the basis of technology standards. “More importantly, the cost of 3G and 4G compatible mobile handsets and the tariff for 3G and 4G telecommunication services appear to be largely similar,” CCI said.
-Airtel, on the other hand, claimed that Jio provides its services via 4G LTE only and the focus should remain on this. While Jio claims that there is no difference between telecom services offered via 4G, 3G and 2G. To support its claims, Jio adds that the company itself does not differentiate between cellular network standards. CCI countered stating that currently all telcos offer both bundled (voice+data) plans and unbundled plans for (a)data-only device users; (b)voice-enabled device users. “Thus, distinction between the said services has not been found necessary in the facts and circumstances of the case,” CCI added.
2) Who leads the market currently?
-The telecom market is led by Airtel itself with a 23.5% share, followed by Vodafone with 18.1% share, and Idea with 16.9% share, while Jio owns 6.4% of the market in terms of subscriber base, CCI said. The market has witnessed the entry of multiple players competing with each other which resulted in lowered tariffs over the years, since opening up of telecom to the private sector. “In none of the 22 telecommunication circles, the Opposite Party (Jio) has a market share higher than 7%,” CCI noted.
3) Are consumers free to choose between services? Is there a monopoly situation?
-Consumers are free to choose between multiple service providers, and also has the ability to move between networks with and retain the phone number as well. “This implies that dependence of consumers on any single telecom operator is not of any significant extent,” CCI said in its assessment.
4) Finally, Is Jio a dominant operator?
The commission does not see Jio as a dominant operator. It added that Jio’s competitors itself have made “comparable investments” and that the the “success of Jio in managing large scale investments does not suggest dominant position being enjoyed by Jio.”
“Against this (the above) background, it is difficult to construe dominant position being possessed by OP-2 with 6.4% market share, which presupposes an ability to operate independently of the market forces to affect its consumers or competitors,” CCI noted.
5) Are Jio’s free offers predatory and anti-competitive?
-According to CCI, Jio;s offers does not violate any section of the Completion because firstly, Jio isn’t a dominant player in the market. Secondly, Airtel’s allegations that predatory pricing allowed Jio to amass 72 million subscribers due to below-cost prices was not taken into consideration but the CCI. The commission instead noted that there is no primary evidence for Airtel’s claims and that it cannot charge Jio under any relevant laws:
“In a competitive market scenario, where there are already big players operating in the market, it would not be anticompetitive 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…In view of the foregoing discussion, the Commission is of the considered view that no prima facie case of contravention of Section 4(2)(a)(ii) of the Act is made out against Jio.”
Download: Copy of CCI order