Brief Background of the Case
A case was filed by Bharti Airtel against Reliance Industries and Reliance Jio alleging that they are violating the competition laws by sharing information and helping each other to offer better services to their customers and violating the provisions of Section 3 and Section 4 of the Competition Act 2002. It was alleged that Reliance Jio Infocom Limited was using its dominant market position to offer predatory pricing to its subscribers. Reliance Industries (RIL) started a new telecom subsidiary, Reliance Jio, on September 1 where Volte services were provided to its clients. However, competitors Airtel have described Jio’s activities as predatory. Following these allegations, Bharti Airtel lodged a complaint with India’s Competition Commission. (CCI). Bharti Airtel claimed that Reliance Industries was helping Reliance Jio Infocom to do this, by providing it with financial support during its early stages of operations. Reliance Jio Infocom Limited (OP2) is receiving support from Reliance Industries (OP1), which is why all of OP2’s losses in its preliminary months of providing free services to its subscriber base have been privileged by OP1, and this has been causing abuse of dominant position. Under section 4 of the Act, the term “dominant position” is defined as “a strong position held by an enterprise in the relevant market in India which enables it to be dominant in a market. The Competition Commission looks at a lot of different factors such as the size and resources of the enterprise, the enterprise’s economic power, the basis of dominant position, and customer dependence on the company, in addition to market share. So, even if Jio has a big market share, it may not have a dominant position when other factors are taken into account. The CCI rejected Airtel’s complaints and ruled that Jio’s actions were a legitimate exercise of competitive pricing.
Laws Applied
In the Judgement Section 3 and 4 of the Competition acts 2002 have been referred as the case deals with “abuse of dominant position” and “anti-competitive practices” between Reliance Industries Limited and Reliance Jio Infocom Limited. The term “dominant position” means when a company is in a better position than the others, and can control the competition. If a company uses its power in a bad way, this is called abusing its dominant position. Thus, we can say that Dominant position means a company is in a position where it can control the market and compete with other companies. The firm which has a dominant position in the market tends to reduce competition and has the power to dominate other firms. The main goals were to lessen the distributing economic power in the control of a select few market participants, who might attempt to crush or eliminate market rivalry. In order to keep or strengthen its position in the market, a dominant firm may engage in abusing dominant position.” A business operating in a dominant position might impose unfair or discriminatory practises to limit or restrict the production of goods or services. Competition that is conducted unfairly or in an unethical manner is not healthy and is abusing enterprise’s dominant position
If a company wants to be considered predatory, it must be the dominant player in the market, must be offering prices that are lower than the cost of production having the intention of driving out competitors to make quick profit. The competitors using predatory pricing target consumers by giving them lucrative offers and through this means competitor acquires a dominant position in the market. Predatory pricing is a method in which sellers drive the price so low that competition is driven out of the market.
France Telecom SA vs commission is a case of predatory pricing similar to Bharti Airtel vs Reliance Industries Ltd. Wanadoo subsidiary of the main telephone company France Telecom, offers a high-speed Internet connection. Wanadoo charged French residential customers a low price for ADSL (Asymmetric Digital Subscriber Line) service. The market share of the nearest competitor was approximately 8%. During the observed period, one competitor withdrew from the market, while others increased their market share. In September 2001, the European Commission (“Commission”) launched an investigation into Wanadoo’s activities. The commission found that Wanadoo set prices that did not include variable costs. and full payments) and created a plan to compete in the high-speed Internet market by decision of July 16, 2003. The Commission deals with consumer protection costs (such as advertising, marketing exercises or special[1]l offers) such as variable costs. Despite the fact that these costs are not specifically related to each item sold, the Commission found that there is a sufficient link between them and the resulting[2]g sales.
Contentions from Informant
Bharti Airtel Contented against RIL and RJIL that the resources accounted to predatory pricing and were violating Section 4(2)(a)(ii) of Competition Act. RIL and RJIL had entered into anti-competitive agreement between them having unrestrained access to Reliance Industries’ cash and resources to harm other telecom competitors in the sector and violated Section 3(1) of the act. It was further contented that Reliance Industries Limited has violated Section 4(2)(e) of the said Act by offering financial leverage in other sectors to enter the telecom business by providing 4G LTE communication services in 20 telecom service areas covering the entire India.
Probable defences
CCI observed that allegation by informant regarding predatory pricing adopted by Jio is contradicted in itself, as it was perceived by commission that informant did not give any credible clarification on how these services are the result of Reliance Industries’ unilateral conduct or whether there existed an anti-competitive agreement between Reliance Jio and Reliance Industries. According to the Commission, the fact that Reliance Industries provided the services free of charge cannot raise concerns about an anti-competitive agreement unless it is available to the dominant company only to eliminate competitors. Bharti Airtel claimed that Reliance Industries and Reliance Jio had anti-competitive agreement as per Section 3(1) of the Competition Act 2002 and due to this Jio had dominant position. In response to this allegation, the Commission noted that Reliance Industries was not engaged in the provision of telecom services or related activities. If such activity is considered anti-competitive, it prevents organizations from expanding their activities. The commission highlighted that customers have a variety of service providers to select from and are not reliant on a single one. The Commission came to the conclusion that Reliance Jio did not influence other participants in the telecoms market since it did not hold a dominating position in that sector. Reliance Jio is unable to use predatory pricing to take advantage of its dominant position in this industry.
Analysis and Conclusion
Predatory pricing involves new players charging very low fee in order to capture market share and gain customers. In Bharti Airtel vs Reliance Jio’s case, CCI held that there was no intention of predatory pricing to eliminate competitors when free services were offered by RJIL. It can be argued that even if the intent cannot be established but the RIL’s economic right would allow RJIL to maintain predatory price for longer period till a large market share was captured. Therefore, it shows abuse of dominant power by imposing unfair purchase price and violating Section 4(2)(a)(ii) of the Competition act which bans the imposing of unfair purchase pricing. Free services, wide presence across India, a 72.3 million share in 4 months is a strong financial proof. It was alleged that Jio used predatory pricing methods by offering free data and voicemail, TRAI ruled that Jio’s case did not fit a predatory pricing strategy because Jio was a new entrant in the market and could not be dominant player. This was called penetration pricing. In my opinion, the penetration pricing strategy used by any company that is dominant in its own industry must also be considered anti-competitive because it already has an established consumer base, although for a different product. In the Jio’s case, Reliance, which runs Jio communication, had the opportunity to attract buyers to its new product even before it entered into the market. In any case, because it was new to the telecom industry, it was exempted from predatory pricing. CCI ignored the above-mentioned evidence and relied on economic evidence only while investigating predatory pricing issues showing the ability to maintain low costs for long periods of time and the ability to recover losses later by gradually increasing costs once a large market share is reached. Although CCI did not foresee the future of competitors, RJIL was the dominant player in the 4G market with a 35% market share and unmatched financial strength. We can conclude that just because RJIL was a new entrant and according to CCI it did not enjoy a dominant position is a drawback that predatory pricing occurs as a result of dominance, and predation is not regarded as a sign of dominance. Considering other indicators like capacity to maintain a low price, suffer large losses and recover those losses later also show dominance and hence prove predation. When RIL’s financial strength was combined with RJIL’s reach in 2300 MHz 4G spectrum, RJIL kept its price at zero for up to 7 months. Now that all other players are losing money, Jio had started increasing its prices continuously every month to make up for its losses. The fact that RJIL was the only profitable telco and had the largest market share (35%), showed that the losses are being recovered. Although it was possible to absorb the losses due to RIL’s financial strength, CCI ignored this possibility. Thus, in Bharti Airtel v. Reliance Industries Limited, the CCI once again failed to distinguish between predatory and penetrative pricing.
[1] Bharti Airtel Ltd. v. Reliance Industries Ltd. & Anr., CCI Case No. 03/2017.
[2] 3 Prathit Sareen, Competition Law and Telecom Sector, LEGAL SERVICES INDIA, (May. 1, 2022, 10:45pm) See Available at 4 Section 4 of Competition Act, 20
Author Bio
