Competition Law Fd.docx

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

SUBJECT: COMPETITION LAW Session: 2018 - 2019 FINAL DRAFT ON “Case Analysis on Predatory Pricing: Bharti Airtel Ltd. Vs Reliance Jio InfoComm. Ltd.”

SUBMITTED TO:

SUBMITTED BY:

Dr. Visalakshi Vegesna

Shubham Singh Rawat

Associate Professor (Law)

B.A. LL.B. (Hons.)

RMLNLU

Sec. B; Enroll. No.-134 1

ACKNOWLEDGEMENT

I express my gratitude and deep regards to my teacher Dr. Visalakshi Vegesna for giving me such a challenging topic and also for his exemplary guidance, monitoring and constant encouragement throughout the course of this project. I also take this opportunity to express a deep sense of gratitude to my seniors in the college for their cordial support, valuable information and guidance, which helped me in completing this task through various stages. I am obliged to the staff members of the Madhu Limaye Library, for the timely and valuable information provided by them in their respective fields. I am grateful for their cooperation during the period of my assignment. Lastly, I thank almighty, my family and friends for their constant encouragement without which this assignment would not have been possible.

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TABLE OF CONTENTS

I.

Introduction………………………………………………………………….4

II.

What is Predatory Pricing ?…..……………………………………………...4

III.

Predatory Pricing under Indian Competition Act, 2002…………………..4-5

IV.

Relevant Sections………………………………………………………….5-6

V.

Legal Precedents on Predatory Pricing……………………………………...6

VI.

Case Analysis with Facts & Allegations…………………………………..7-8

VII.

Assessment & Ruling by CCI with Reasoning…………………………..9-10

VIII.

Conclusion………………………………………………………………….10

IX.

Bibliography………………………………………………………………..11

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INTRODUCTION Competition in the economy is the best way to ensure that the common man gets access to the widest range of goods and services at the most competitive prices. This more important for a developing economy like ours. With increasing competition in India, the producers have maximum incentive to innovate and specialize in their goods and services. A fair competition results in reduced costs and wider choice to consumers. The Competition Commission of India is a statutory authority with the mandate to enforce the Competition Act of 2002. The objective of the CCI is to create and sustain fair competition in the economy which will provide a ‘level playing field’ to the producers, while making the markets work for the welfare of the consumers. The Competition Act, 2002 focuses to sustain competition, protect the interests of the consumers and ensure freedom of trade in markets in India. It enables a healthy competitive culture that inspires the business to be fair, competitive and innovative. This enhances consumer welfare and supports economic growth.

WHAT IS PREDATORY PRICING ? Predatory pricing constitutes a class of anti-competitive action where prices are set so low as to eliminate competing undertakings and, thereby, threaten the competitive process itself. In these circumstances, consumers may benefit in the short run from lower prices, but, in the longer term, weakened competition will lead to higher prices, reduced quality and less choice.

PREDATORY PRICING UNDER INDIAN COMPETITION ACT, 2002 The Competition Act, 2002 outlaws predatory pricing, treating it as an abuse of dominant position, prohibited under Section 4. Predatory pricing under the Act means 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. Predatory pricing is pricing one’s goods below the production cost, so that the other players in the market, who aren’t dominant, cannot compete with the price of the dominant player and will have to leave the market. The CCI in In Re: Johnson And Johnson Ltd.1 said that “the essence of predatory pricing is pricing below one’s cost with a view to eliminating a rival.” The Act does not prohibit a “dominant position” per se but only its abuse. Any abuse of dominant position will be dealt by the CCI as per section 27 of the Act.2

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(1988) 64 Comp Case 394 NUL. http://psalegal.com/upload/publication/assocFile/CommercialLawBulletin-Issue III.pdf, last accessed on March 24, 2019. 2

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Abuse of dominant position and predatory pricing are two principles which are bound together by the an intricate web of legal rules and the economics of single-player control over a market and are so obscurely overlapped that they can only be severed from one another by the genusspecies disengagement. Abuse of dominant position is the genus, whereas predatory pricing is the species. In simple terms, an enterprise or a group may, illegally, abuse its dominant position; predatory pricing is just one of the many, however the most frequently used, ways in which that enterprise or group may abuse its position of dominance.3

RELEVANT SECTIONS Section 4(2) (a) of the Competition Act, 2002 states that there shall be an abuse of dominant position under Sub-section (1), if an enterprise directly or indirectly, imposes unfair or discriminatory condition in purchase or sale of goods or service; or price in purchase or sale (including predatory price) of goods or service. Explanation. - For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory condition or price which may be adopted to meet the competition. As per explanation (b) at the end of Section 4 predatory pricing refers to a practice of driving rivals out of business by selling at a price below the cost of production. Denial of market access briefly referred to in this section, if read conjunctively, is expressly prohibited under Section 4 (2) (c) of the Competition Act, 2002. Sec 4(2) (a) (ii): Predatory Pricing There shall be an abuse of dominant position [under subsection (1), if an enterprise or a group]. - (a) directly or indirectly, imposes unfair or discriminatory- (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service. Sec 4(2) (e): There shall be an abuse of dominant position [under sub-section (1), if an enterprise or a group.] - uses its dominant position in one relevant market to enter into, or protect, other relevant market. Sec 4(2) (c): There shall be an abuse of dominant position [under sub-section (1), if an enterprise or a group]. - indulges in practice or practices resulting in denial of market access [in any manner.]

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http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=3e7817b5-23f9-4313-9ac0fd94a329de45&txtsearch=Subject:%20Competition%20/%20Antitrust, last accessed on March 24, 2019.

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Explanation. - For the purposes of this section, the expression— (a) “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to - (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour. (b) “predatory price” means 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.

LEGAL PRECEDENTS ON PREDATORY PRICING The COMPAT in the matter of MCX Stock Exchange Ltd. v. National Stock Exchange & Ors.4 upheld the order of CCI and held that the fee waivers which are provided by NSE in the currency derivatives segment are unfair. It was held that NSE was abusing its dominant position and MCX was required to be protected against the same. CCI and COMPAT have followed the test of recoupment and intention to decide the cases of predatory pricing. It was observed by CCI in the matter of H.L.S. Asia Limited, New Delhi v. Schlumberger Asia Services Ltd. Gurgaon and Oil & Natural Gas Corp. Limited, New Delhi,5 that in order to claim a remedy under predatory pricing, determination of the average variable cost is most important. It was further stated that average variable cost, so determined should be more than the current price of that product. Further, in the order of M/s. Transparent Energy Systems Pvt. Ltd. v. TECPRO Systems Ltd.6 the Commission held that to decide whether the dominant firm is engaged in the practice of predatory pricing, the following three conditions have to be satisfied: 1) The prices of the goods or services of the dominant firm is below the cost of production of such goods or acquisition of such service. 2) Such decline in the prices of the dominant firm was brought with the intention of driving the competitors out of the market. 3) There is a significant planning in order to recover or recoup the losses that are incurred by increasing the prices again after the competitors are forced out of the market.

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Case No. 13 of 2009 Case No. 80/2012, 2013 6 Case No. 09 of 2013, (2013) 5

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CASE ANALYSIS OF BHARTI AIRTEL LTD. Vs RELIANCE JIO INFOCOMM. LTD. (PREDATORY PRICING CASE)7 - Under Hon’ble forum of CCI

Facts & Allegations put forthwith by Airtel, as against RJio (hereinafter referred to as Reliance Jio)

1. Dominance in the 4G broadband segment: RJio acquired the BWA/4G spectrum in 2010 and benefitted as the government changed its rules retrospectively. Thus, enabling RJio to provide both voice calls and data services on the same spectrum. Huge investments of up to Rs. 1, 60,000/- crore in telecom industry is stated to be an indication of its dominant position in comparison to the other existing telecom players and indicate imminent leadership in the telecom sector apart from causing an appreciable adverse effect on competition within the relevant market. 2. Intention to create monopoly: RJio is data centric and works only on 4G mobile handset. Therefore, consumers may end up paying more for RJio services under the guise of free voice calling than other providers. 3. Free offers are predatory in nature: RJio’s free services of the trial period were supposed to be till December 30, 2016. However, they had constantly extended deadlines until the introduction of Jio Prime. RJio is providing the same services at a discount of 90% interalia predatory pricing. The Competition Commission of India (CCI) has investigated a number of instances of unfair competition. For example, the CCI has investigated complaints of “predatory pricing” against transport-technology companies, Uber and Ola, as well as allegations made against e-commerce websites, Flipkart and Amazon. These complaints were made after these companies started offering large discounts to consumers. Each of these companies have since been exonerated of any charge of “predatory pricing” as none of them had a “dominant position” in their respective markets. While investigating these cases, the CCI considered a firm’s market share as the sole determinant of dominant position. The CCI is, however, expected to consider a range of factors while ascertaining market dominance.8 When Jio first launched its services in September, 2016 it was a fresh entrant in a market with several established players. Its price point of zero was certainly below cost but there was no

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Case No. 03 of 2017 http://www.epw.in/journal/2016/39/web-exclusives/reliance-jio-predatory-pricing-or-predatory-behaviour.html, last accessed on March 25, 2019. 8

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question of it being a “dominant player”. Any regulatory intervention to stop the pricing plans at that stage, whether by the sectoral regulator TRAI or the CCI, would have been premature. This position has come to change over the last few months. Jio has managed to acquire a sizeable presence in the market for high-speed data services – it holds about one-third of the country’s broadband subscriber base and about 85 percent of the market in terms of mobile data traffic. Its share in the overall market for telecom services (voice plus data) still remains small since telecom subscribers continue to outnumber internet users by a wide margin. The manner in which CCI delineates the “relevant market” will therefore form the crux of its analysis in this case.9 The first step for CCI would be to determine whether there is a market for data services that is distinct from the broader cellular services market. Next, CCI will need to examine whether Jio can be regarded as being dominant player in the identified market. The third challenge would be to assess whether its current prices are in fact “below cost”. Finally, CCI will have to determine whether Jio’s current pricing continues to be in the nature of a genuine “promotional strategy” by a new entrant or it is a deliberate attempt to reduce competition in the market. In order to establish an allegation of predatory pricing, the complainant has to successfully demonstrate that the accused had priced goods or services with a view to reduce competition or eliminate the competitors. It seems that it is not necessary to establish or prove any “actual” reduction in competition or elimination of competitors. Once a case of predatory pricing has been made out, the CCI may pass any order as per section 27 of the Act. For a mobile operator to be guilty of predatory pricing, it must be in a “dominant position” as per section 4 of the Act. Since the Indian market is all about numbers, no new entrant can be said to be in a “dominant position” and, therefore, may never be guilty of predatory pricing, even though it may have deep pockets to withstand lower tariffs as compared to other operators and successfully eliminate any future competition from other new entrants. This can also have a negative impact on the older and established operators, who may be in a dominant position, but may not have a suitable business model to sustain lower tariffs for a very long period of time. Therefore, competition can be negatively impacted even though the operator accused of predatory pricing is not dominant and as it turns out Reliance Jio has managed to do just that for quite long. As far as Reliance Jio’s case is concerned, it is no more a fresh entrant in the business and has in fact gone on to hold about one-third of the country’s broadband subscriber base and about 85 percent of the market in terms of mobile data traffic, as discussed earlier.

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https://ajayshahblog.blogspot.in/2017/04/building-blocks-of-jios-predatory.html?m=0, last accessed on March 25, 2019.

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ASSESSMENT & RULING BY CCI

The CCI closed the case under Section 26(2) of the Act, saying that it is difficult to construe Reliance Jio Infocomm Limited to be in a dominant position; let alone abusing such dominant position and therefore the question of examining the alleged abuse does not arise, due to factors such as: 1. The market is characterized by the presence of several players resulting in sufficient choice to consumers who can shift from one service provider to another and that too with ease. 2. Dependence of consumers on any single telecom operator is not of any significant extent. 3. Reliance Jio Infocomm Limited possesses a market share of 6.4%. Reasoning given by CCI: “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 anticompetitive objective of excluding competition / competitors, which does not seem to be the case in the instant matter as the relevant market is characterized 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 anticompetitive for an entrant to incentivize 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.” – The 6 member CCI bench headed by Chairperson, D. K. Sikri ruled. Held: The CCI defined the “relevant market” as provision of “wireless telecommunication services” to end users even though it noted that that 4G technology is superior to 3G technology in certain aspects and will be operative only in 4G compatible mobile instruments and consumers may have to incur additional cost towards buying new mobile instrument to avail 4G telecommunication services. Jio and Airtel both offer “wireless telecommunication services” and the focus of the case will be on this segment only instead of defining the “relevant market” to “providing 4G LTE services of telecommunication in India”/ “providing 4G LTE services using 4G technology in India” as claimed by Airtel. Held: The CCI also contended on the other hand that Reliance, by merely making investments into a telecom start-up could neither be construed as leverage of dominant position nor an anticompetitive agreement. “If one were to construe such investment as anti-competitive, the same would deter entry and/or expansion and limit the growth of markets.”

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Held: Market share is one of the indicators for assessing dominance, but the same cannot be seen in isolation to give a conclusive finding. The regulator also said financial strength is relevant but not the sole factor to determine dominant position of an enterprise. Held: 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. The market has witnessed the entry of multiple players competing with each other resulting in lowered tariffs over the years, since opening up of telecom to the private sector; hence leading to fair competition in the market and the benefit getting transferred to end consumers. Hence the commission did not find Reliance Jio Infocomm. Ltd. in a dominant position at a scenario where its own customers constitute less than 7 per cent of the total subscriber base at pan-India level.

CONCLUSION

Market has always been a consumer centric business model which harnesses the potential of the players in a fair and healthy competitive environment. Amongst many other challenges present, the most important is to abolish the system of concentration of power. As essential it is for the consumer to derive the value for money for the goods they want, it is equally important that the companies have a fair playing ground to establish themselves as a reliable and trustworthy entity. Whilst all the competitors in the market have diverse backgrounds and economic portfolios, it should be understood that principles of fairness apply to each of them individually. Predatory Pricing may in some cases be implemented and considered as a check by the Govt. agencies to rule out unlawful market entities or business practices. Interestingly given the developing affairs of the Indian Economy the market is often vulnerable to new entrants who struggle to establish themselves, however the same doesn't seem to be the case with "Jio" a part of the conglomerate of the Reliance Group of Industries. Thought what may have been appearing as an act of predatory pricing, as has been accused by the other major players in the relevant market sector, it shall be interesting to watch what the course of actions which further go on in the sectors of telecommunications in India and what will the Hon’ble Supreme Court say on this matter.

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BIBLIOGRAPHY Primary source: 

The Competition Act, 2002.

Secondary sources: (Webliography)        

http://www.thehindubusinessline.com/2004/10/20/stories/2004102000091100.htm http://exampariksha.com/read-offline/4446/competition-commission-india-economicsstudy-material-notes.pdf http://www.cci.gov.in/competition-act http://www.business-standard.com/article/pti-stories/now-airtel-moves-cci-against-rjioalleges-predatory-pricing-117020600947_1.html https://competitionlawobserver.wordpress.com/2017/04/04/changing-times-of-telecomindustry-the-rise-of-reliance-jio/ http://www.epw.in/journal/2016/39/web-exclusives/reliance-jio-predatory-pricing-orpredatory-behaviour.html https://ajayshahblog.blogspot.in/2017/04/building-blocks-of-jios-predatory.html?m=0 https://www.medianama.com/2017/06/223-heres-why-cci-dismissed-airtels-complaintagainst-jio/

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