Competition Law Issues in the Indian Telecom Sector: Analysis of Recent Developments

[Varun Kannan is a 5th year law student at the National University of Juridical Sciences, Kolkata]

The telecom sector in India has witnessed intense competition over the past decade. The arrival of Reliance Jio and the Vodafone-Idea merger reinforce the steep competition that exists in this sector – which forces the market players to continuously enhance their performance and gain an edge over their competitors. Keeping this background in mind, I shall refer to two judicial decisions delivered in recent years where the telecom market players have initiated complaints against each other for predatory pricing and cartelization. The first decision that I shall be analyzing is the Competition Commission of India’s (CCI) decision in Bharti Airtel v. Reliance Jio, where the CCI held that Reliance Jio was not in a dominant position in the market and was not indulging in predatory pricing.

The second decision that I shall refer to is the Supreme Court’s decision in CCI v. Bharti Airtel, where the Court has sought to harmonize the regulatory powers of the CCI and the Telecom Regulatory Authority of India (TRAI). This case arose from a complaint by Reliance Jio that Bharti Airtel, Vodafone and Idea had formed a cartel. The Supreme Court quashed the CCI order which had an initiated an investigation that was to be conducted by the Director General under section 26 of the Competition Act, 2002. I critique these two decisions, and analyze their implications for future disputes that may be initiated by market players in the telecom sector.

Bharti Airtel v. Reliance Jio

This case concerned a complaint filed by Bharti Airtel against Reliance Jio, which entered the telecom market in September 2016. Bharti Airtel contended that through the services it provided to the user, Reliance Jio was engaging in predatory pricing in violation of section 4(2)(a)(ii) of the Competition Act. The services granted by Reliance Jio right after its entry into the telecom market included a ‘Jio Welcome Offer’ under which data, voice, video and a full bouquet of applications were granted absolutely free of cost to the purchasers from a time-frame commencing on 5 September 2016 until 31 December 2016. Another offer called the ‘Happy New Year’ offer was launched at the commencement of the new year, through which the consumers could receive unlimited internet data, messages and voice calls till 31 March 2017. The services provided by Reliance Jio was the first service that would be absolutely free, without having any consideration with respect to the volume of network or data usage.

It was alleged by Bharti Airtel that this provision of free services amounted to predatory pricing, and was in violation of section 4(2)(a)(ii) of the Act. Under section 4, an enterprise shall be liable for having conducted ‘predatory pricing’ only if it is held to be in a ‘dominant position’ in that ‘relevant market’. Before proceeding to determine whether Reliance Jio was in a dominant position, the CCI determined the ‘relevant market’ to be the market for ‘provision of wireless telecommunication services to end users in each of the 22 circles in India’.

The CCI went on to note that, according to market data, Reliance Jio does not have a market share of more than 7% in each of the 22 telecom circles in India, and the market consists of several players (such as Vodafone, Idea, Tata, MTNL, etc.) who have similar financial and technical capabilities. There existed sufficient choice in the market and the consumers were not in any way dependent on a single service provider. In light of this, the CCI held that Reliance Jio cannot be said to be in a dominant position in the relevant market. As it was not in a dominant position, there does not arise any case for abuse of dominant position through predatory pricing in the relevant market.

It is significant to note here that this decision was delivered on 9 June 2017. Since 2017, Reliance Jio has increased its market share significantly. This can be illustrated by the fact that in the third quarter of the previous fiscal year, Reliance Jio managed to surpass Vodafone-Idea and Airtel in terms of revenue market share. Hence, one significant question that arises here is whether Jio can be considered to be in a ‘dominant position’ in the telecom market as of today, and whether the conclusion with respect to ‘dominance in the relevant market’ can be different to what it was in 2017.

Under section 4(2) of the Act, ‘dominant position’ refers to a position of strength enjoyed by an enterprise in the relevant market, which enables it to (a) operate independently of the operative forces prevailing in the market, or (b) affect its competitors or consumers or the relevant market in its favour. Under section 19(4), one important factor to be taken into account while determining whether an enterprise is in a dominant position is the market share of the enterprise. However, it can be argued that Jio cannot be held to be in a dominant position merely because it has the highest market share (or a significantly high market share), as market share is only one among the many factors that have to be taken into account. Also, while Jio may have witnessed the largest rise in market share, Vodafone-Idea and Airtel continue to remain significant market players, and there exists a three-way split in the market. Furthermore, Jio no longer provides services that are absolutely free of cost, and has begun pricing its services in a competitive manner. Hence, it can be argued that, even as of today, Jio cannot be held to be in a dominant position in the telecom market.

Competition Commission of India v. Bharti Airtel

In this dispute, Reliance Jio filed a complaint against Bharti Airtel, Vodafone, and Idea, contending that these three telecom operators had formed a cartel and were indulging in anti-competitive practices. On receipt of this case, the CCI held that a prima facie case had been made out and directed an investigation to be conducted by the Director General under section 26(1) of the Act. This order of the CCI was quashed by the Bombay High Court, on the ground that the TRAI should initially have jurisdiction over this matter as it was the sectoral regulator of the telecom sector. It held that the CCI could exercise jurisdiction in this scenario only after proceedings under the TRAI Act, 1997 had concluded.

Before the Supreme Court, counsel for the CCI and Reliance Jio assailed the Bombay High Court’s decision by arguing that the CCI and TRAI are regulators that operate in entirely different fields. It was argued that the issue before the CCI was whether the respondents had entered into an anti – competitive agreement to derail the entry of Reliance Jio, in violation of section 3(3)(b) of the Act. On the other hand, the dispute that was pending before TRAI was with respect to a possible violation of the terms of the license agreement, and violation other interconnection regulations and the quality of service regulations. As both the TRAI Act, 1997 and the Competition Act, 2002 operate in separate fields, it was argued that the CCI would have the jurisdiction to determine whether there existed an ‘agreement’ that was anti-competitive in nature, and violated section 3 of the Competition Act. Hence, it was submitted that the CCI could proceed with its investigation even before the TRAI renders its decision.

The respondents on the other hand supported the Bombay High Court decision and contended that TRAI shall have the jurisdiction to regulate all issues with respect to the telecom sector and that, as a specific regulator exists, the CCI shall not have any jurisdiction. They submitted that the CCI was ill-equipped to deal with the issues that face the telecom sector, and TRAI is the only regulator which has the expertise to conduct this inquiry.

The Supreme Court here rejected the arguments of both the parties to a certain extent, and sought to harmonize the regulatory powers of the TRAI and the CCI. The Court referred to section 21 of the Competition Act to highlight that the Act does take into account the role played by other statutory authorities. It noted that it must give an interpretation that prevents the TRAI and the CCI from taking conflicting views on the same subject matter. It was hence held that, at the first instance, the TRAI shall have the sole jurisdiction to examine the complaint filed by the parties. Once the TRAI renders its decision, the CCI shall have the authority to commence an investigation under section 26. The Court here holds that while the CCI’s jurisdiction cannot be ousted, it shall only exercise its jurisdiction at a later stage, once the TRAI renders its decision.

The Court held that this interpretation was in line with section 60 of the Competition Act, 2002, which states that the provisions of the Competition Act shall have overriding effect, notwithstanding any inconsistency with other Indian statutes. The Court also rejected the respondents’ argument that, with respect to the telecom sector, the CCI lacks jurisdiction. Keeping in mind the wording of section 60, the Court held that the CCI shall have the jurisdiction, but can exercise it only at a later stage once the TRAI renders its decision. Through this judgment, the Court has sought to harmonize the objectives of the Competition Act, 2002 on the one hand and the TRAI Act, 1997 on the other. The Court makes it very clear that the TRAI cannot oust the CCI’s jurisdiction, and can only delay the CCI from commencing an investigation till the time the TRAI is seized of the matter.

Concluding Remarks: Implications of the Two Decisions

As competition in the Indian telecom sector continues to rise steeply, the market players are bound to raise similar disputes against each other in the future. Also, as the Competition Act, 2002 is a penal statute that allows imposition of significant penalties, raising a complaint for a violation of this statute turns out as an attractive option for the rival market players. The significant implication of the CCI’s decision in Bharti Airtel v. Reliance Jio is that in the future it may not be possible for the market players in the telecom sector to successfully make allegations that fall within the ambit of section 4 of the Act with respect to abuse of dominant position. This is because, for a section 4 violation, the enterprise must be in a ‘dominant position’ in the relevant market. As there currently exists a three-way split in the telecom market between Vodafone-Idea, Reliance Jio and Airtel, it can be argued that none of these three market players can be considered to be ‘dominant’ for the purpose of section 4.

After the Supreme Court’s judgment in CCI v. Bharti Airtel, the disputing parties shall in future have to first approach the TRAI to exercise its jurisdiction, before which the matter cannot be investigated by the CCI. As all the agreements entered into between and amongst the telecom operators shall also fall within the TRAI’s regulatory ambit, it shall be the TRAI who shall first exercise its jurisdiction. Only after the TRAI’s verdict, will the CCI be allowed to exercise its jurisdiction and commence an investigation. These developments shall have to be kept in mind before market players in the telecom sector initiate disputes against each other in the future.

Varun Kannan

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