Analysis of CCI’s Market Study on the Indian Telecom Sector

[Bhavisha Sharma and Gayathri Pillai are IV year BA.LLB. (Hons.) students at NALSAR University of Law, Hyderabad]

On 22 January 2021, the Competition Commission of India (“CCI”) released a Market Study on the Telecom Sector in India (“Report”) which summarises the recent trends witnessed in the telecom sector (“Sector”). This post summarises the key competition issues identified and recommendations made in the Report, and analyses three specific themes which warrant further comment.

Summary

The Report identified the competition law issues in the recent history as well as the present, and future of the Sector, and offered recommendations regarding regulatory bodies’ future action in tackling them. First, it summarised the effect of entry of Reliance Jio and the consequent sharp decline in prices. It then observed the difficulty in implementing a price floor due to the possibility of multiple monetisation strategies in the Sector, which complicates the assessment of market power. Second, it remarked that the increasing number of partnerships between “over the top” (“OTT”) and telecom companies is considered as a win-win for all entities, and experts do not view them as posing a competition law threat. Provisions of net-neutrality are also key in ensuring non-discrimination. However, the report recommended that the CCI must be vigilant in analysing whether such partnerships can indirectly impose barriers on entry in the OTT arena.

Third, the Report also noted that a key differentiation strategy of telecom service providers (“TSPs”), including Airtel, Jio and Vodafone-Idea, is ‘quad-play’, where they bundle fixed-line, mobile, broadband and television to offer integrated services. This is an important competition parameter and improves customer retention. The Report observes how this ‘ecosystem’, along with migration costs, may often make it difficult for a consumer to switch, but also enhances consumer welfare by reducing their search cost. Thus, it recommends a regulatory regime along with unbundling and differential licensing to enhance competitiveness in each layer, parallel to CCI’s constant efforts to isolate instances of bundling being detrimental to consumer welfare. Fourth, the Report highlights the need to devise competition law tools that can effectively assess traditional and novel competition issues arising in multi-dimensional markets (like the telecom sector). The European discussion on the ex-ante regulatory approach (including precautionary guidelines for dominant players) must also be considered.

Fifth, the Report also makes key observations regarding active and passive sharing of infrastructure between TSPs vis-à-vis its effect on entrance barriers in the Sector. Passive sharing refers to sharing of physical spaces (buildings, sites, masts, and the like) while the network remains separate, but in active sharing elements of the active layer of a mobile network are shared (for instance, mobile roaming). While passive sharing of infrastructure by TSPs has been crucial in reducing cost barriers to entry in the Sector, active sharing needs a regulatory push, as additional implementation costs have discouraged its usage. The Report also championed the recommendation of Telecom Regulatory Authority of India (“TRAI”) setting up public Wi-Fi hotspots, which is estimated to significantly reduce the burden on TSPs’ infrastructure and reduce entry barriers in the Sector.

Further, noting the decline of revenue of the Sector, the Report highlighted its adverse impact on TSPs’ ability to acquire new spectrum and the subsequent launch and penetration of 5G in India. The Report also warned against the possibility of duopoly and emphasised the need to ensure the survival of the three big players.

Analysis

Consumer Welfare

The effect of changes in the telecom sector on consumers is a prevalent theme of the Report. It noted that the decrease in the price of telecom services increased access and was beneficial to customers in the short-run. However, it also noted that this decrease in revenues can be detrimental to quality of services and hinder the implementation of technological advancements, thus, hindering the customers in the long-run. Two factors need to be further highlighted.

First, the Report’s observations on consumer welfare and satisfaction rely on surveys and other sources, but this data has not been publicly shared. The Report observes that Jio, Airtel and Vodafone-Idea subscribers were most satisfied with voice quality, internet speeds and net coverage respectively, to conclude that customer satisfaction highly depends on non-price indicators. However, it does not give any account of the level of (dis)satisfaction of customers with the various services being offered and paints a hazy picture of customer satisfaction with the quality of services (“QoS”). Such evaluation is an important component of a market-study, especially when seen with competing data, like FT’s report on Jio’s dropping number of active users from 84% of the total users in 2019 to 78% in 2020, while these ratios for Vodafone-Idea and Airtel rose to 90% and 98% respectively. This shows that a large number of Jio connections have been abandoned or have been sparingly used, and QoS could have been a contributing factor. Though this data may be explained by other reasons, the Report’s lack of analysis of such data vis-a-vis QoS raises questions on its conclusions regarding QoS.

Second, the Report rightly recognized that data privacy concerns lie at the root of consumer welfare, and that data could be used to command market power and create entry barriers. It further observed that the Indian competition law framework is capable of addressing the consumer exploitation possibly caused by differential privacy standards. While it recommended that the CCI must take cognizance of such issues and examine the intersection of data privacy and competition law, specific instances like the Facebook-Jio deal and its implications on consumer welfare were not mentioned. It has been argued elsewhere that the deal allows giant-corporates exclusive access to large consumer bases and their data, hence giving them an unfair advantage in the market by opening new business opportunities. Thus, the CCI must urgently act upon these issues and analyse specific deals already in place to curb the possibility of any unfair advantage being enjoyed by the players.

Unbundling of Services

The Report observes that bundling is a differentiating factor for TSPs and improves customer retention. However, it recommends the segregation of infrastructure between the different layers to induce competition, and unbundling to allow telecom providers to reduce their costs through outsourcing. While it is understood that such unbundling could help regulate these entities, the suggestion of making Bharat Net programme the primary infrastructure provider would make it more public sector reliant and possibly hinder the investments made by the private entities in the existing market.

The Report does not discuss the proposal’s possible negative impacts on the Sector, which were collectively raised by the major TSPs. The TSPs opposed such unbundling and differential licensing as it would make the licensing regime more regressive and could negatively impact future foreign investments. Especially in the post-COVID-19 times, India cannot afford to distort such regulations, as it has reached an all-time need to strengthen the infrastructure in the technology sector and is heavily dependent on foreign investments for the same in the telecom sector.

The Report highlights how investment into bundled offerings, including Jio’s Gaga Fiber and Airtel’s “Airtel Thanks”, was made by TSPs for customer retention and QoS enhancement. Changes proposed in the Report could detrimentally impact the TSPs and their investments, and warrant further detailed discussion.

New Entrants and Dominance

Multiple questions have been raised regarding CCI and TRAI’s regulation of Jio’s entry in the Sector in 2016 with offers of free data and voice calls with the Jio sim for over six months. The Report summarises how, even after consideration of the issue and demands raised by other players in the Sector, both TRAI and CCI thought it best to continue with the forbearance regime and did not impose price floors. Airtel’s complaint against Jio with CCI in 2017 was also dismissed owing to CCI’s finding that as Jio has merely 7% share in the relevant market, it cannot be qualified as a “dominant player”, which is a requirement of being held liable under section 4 of the Competition Act, 2002.

The Market Study offered a good opportunity for the CCI to analyse and comment on the effects of its Decision on the market. However, issues concerning the determination of market dominance of various players, especially in light of Jio’s rapidly increasing market share, were not considered in detail. Thus, the Report is a missed opportunity to analyse in detail the effect new entrants could have on a Sector vis-a-vis the requirement of being in a dominant position.

Conclusion

While the Report brought together the various competition issues in the telecom sector and noted the adverse effects of decreasing revenues on the advancement of competitiveness in the Sector, it did not delve into the seriousness of the threat of duopoly, or proffer recommendations to tackle it. Enormous liabilities on Airtel and Vodafone-Idea, and Jio declaring itself debt-free show that one entity is clearly better placed to sustain expenditures of expanding 5G technologies than the other two. The CCI ought to play a more vigilant and ex-ante role in preventing any further anti-competitive practices and should protect the competitors in the short-run to protect competition in the long-run.

Note: CCI is hosting a virtual Workshop on Competition Issues in the Telecom Sector in India on 5 February 2021 to collate the perspectives of different stakeholders regarding emerging trends in the Sector and their implication on competition.

Bhavisha Sharma & Gayathri Pillai

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