TRAI v. CCI: Whose Jurisdiction is it anyway?


The Indian telecom sector has witnessed continual activity in the recent years, with the entry of new players such as Reliance Jio, consolidation between existing players such as Vodafone and Idea Cellular and the exit of incumbent players such as Telenor and Tata Teleservices. This constant transformation has intensified the battle between industry players to garner market shares and attract consumers. In addition to competing in the marketplace, telecom operators have also been fighting legal battles on competition issues such as cartelisation and predatory pricing as well as on telecom issues such as interconnection. Given that the issues at the core of these matters relate to both competition and telecom laws, a turf war has arisen between the Telecom Regulatory Authority of India (TRAI) and the Competition Commission of India (CCI) re jurisdiction.

Notably, CCI had, through a letter to TRAI last year, highlighted its competence to look into matters relating to predatory pricing. The letter was a result of a consultation paper issued by TRAI in February 2017 on anti-competitive concerns in tariffs by Telecom Service Providers (TSPs).[1] In his letter, the CCI Chairperson stipulated that “issues and questions for consultation relating to delineation of relevant market, assessment of dominance and predatory pricing” are “issues of determination for the Commission”.[2]

Responding to CCI, TRAI stressed that it had the experience and capability to examine all matters, including competitive issues, falling within the purview of tariffs.[3] In line with its assertion, pursuant to the Telecommunication Tariff (Sixty-third Amendment) Order, 2018 (the Amendment Order)[4], TRAI has recently amended the Telecommunication Tariff Order, 1999 (the Tariff Order), to regulate tariffs offered by TSPs on the basis of competition law principles. Through the amendment, TRAI has introduced concepts of “significant market power” and “predatory pricing” in the Tariff Order.

According to TRAI, such regulatory powers are set out under the Telecom Regulatory Authority of India Act, 1997 (the TRAI Act), which requires it to take “measures to facilitate competition and promote efficiency in the operation of telecommunication services so as to facilitate growth in such services”. To further this mandate of facilitating competition, TRAI in its Amendment Order has provided guidance on non-predation, through the insertion of the following definitions:

(a) “Non-predation” has been defined as not indulging in predatory pricing by a service provider having significant market power;

(b) “Significant market power” has been defined as a TSP holding a market share of at least 30% in the relevant market, which is to be determined on the basis of either subscriber base or gross revenue. The Amendment Order simultaneously recognises that the concept of ‘SMP’ flows from the concept of ‘dominance’ under competition laws;

(c) “Predatory pricing” has been defined as the provision of a telecommunication service in the relevant market at a price which is below the average variable cost, with a view to reduce competition or eliminate the competitors in the relevant market—Interestingly, the Amendment Order also refers to the definition of “predatory pricing” under the Competition Act, 2002 (the Competition Act) to emphasise that intent is the key;

(d) “Relevant market” has been defined as the market which may be determined by TRAI with reference to the relevant product market for distinct telecommunication services (such as Wireline Access Service, National Long Distance Service, International Long Distance Service) and the relevant geographical market;

(e) “Relevant product market” has been defined as the market in respect of a distinct telecommunication service for which the licensor grants licence to the TSP;

(f) “Relevant geographic market” has been defined as a market comprising the respective licence service area for which the licensor grants licence to the TSPs to provide distinct telecommunication services.

In addition to requiring the TSPs to conduct a self-check of tariffs at the time of reporting it to TRAI in order to ensure that there is no predation, the Amendment Order also confers suo motu powers on TRAI to examine tariffs to determine the occurrence of any predatory pricing, thus extending its jurisdiction to ex-post abusive conduct. In case of predation, a penalty not exceeding INR 50 lakhs per tariff plan for each service area can be imposed by TRAI.

Post the introduction of the Amendment Order however, officials of TRAI have clarified that dominant operators may match tariffs offered by a new entrant, and such actions would not be seen as predatory.[5]

On the other hand, the Competition Act established a sector agnostic regulator to prevent practices having adverse effect on competition and to promote and sustain competition in markets. The Competition Act sets out specific prerogatives of CCI to prohibit anti-competitive agreements and abuse of dominance. The abusive practices identified include predatory pricing. However, affording due consideration to the market dynamics, the Competition Act requires CCI to holistically examine such conduct. The in-depth examination required by CCI includes the delineation of the relevant market on the basis of factors such as end-use, pricing, consumer preferences, regulatory barriers, transport costs, etc.[6] Subsequently, CCI is required to make a determination of dominance giving due regard not only to the market share of the enterprise, but also to its size and resources, economic power, entry barriers, countervailing buyer power, market structure, etc.[7] Similar to clarifications from TRAI officials, the Competition Act also provides for a carve-out against predatory pricing if such pricing has been adopted to “meet the competition”.

However, contrary to the bright-line test of 30% under the Amendment Order, CCI’s decisional practice repeatedly cautions against adopting a blanket market share test for detection of dominance. As noted by CCI’s Chairperson in the letter to TRAI, market interactions should ideally be assessed on a case-by-case basis without any presumptions based on a formulaic framework.[8] CCI’s holistic approach is evidenced by its recent orders in the telecom sector, where it has approved mergers of key telecom players, despite the significant aggregate market shares, after having weighed in factors such as buyer power, increased switching, absence of switching costs, presence of other players, dynamic nature of the market, etc.[9]

The difference in the regulatory frameworks gives a preview of the contrasting approach to be adopted by the regulators for the same contravention and the conflicting regulatory views that the industry is likely to witness in the coming months. Moreover, while contrasting views may make compliance by TSPs difficult, similar findings may also lead to double jeopardy.

The regulatory conflict has already surfaced before courts, with the Bombay High Court finding that the Competition Act itself is not sufficient to decide and deal with the issues arising out of the provisions of TRAI Act and the contract conditions, under the relevant regulations.[10] The appeal to the Bombay High Court had been filed against a prima facie order of the CCI finding that TSPs, such as Airtel and Vodafone, had cartelised to deny adequate point of interconnections to Reliance Jio to thwart its entry into the telecom market. The decision of the High Court has now been appealed to the Supreme Court.

While the way forward is unknown, this fight for regulatory supremacy can only end with the CCI and TRAI joining forces to coordinate and consult with each other in matters that involve questions of competition and telecom laws. This will also be in line with the intent of the legislators who foresaw this situation and included a provision[11] under the Competition Act for a reference of matters inter se CCI and other statutory regulators.

 

Anshuman Sakle is a Partner with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at anshuman.sakle@cyrilshroff.com.  Arunima Chandra is a Senior Associate with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at arunima.chandra@cyrilshroff.com.

[1] Available at http://www.trai.gov.in/sites/default/files/Consultation_paper_03_17_feb_17_0.pdf.

[2]Available at https://www.thehindubusinessline.com/info-tech/turf-war-rages-between-cci-and-trai-over-telecom-tariffs/article9791247.ece.

[3]Available at http://www.financialexpress.com/industry/trai-tells-cci-it-has-power-to-settle-competitive-telecom-tariff-issues/798026/.

[4] Available at http://trai.gov.in/sites/default/files/TTO_Amendment_Eng_16022018.pdf.

[5]Available at http://www.livemint.com/Industry/O00tAdsmeBgcObcQSE42uO/Telecom-firms-free-to-match-Reliance-Jios-cheap-tariffs-ru.html.

[6] Sections 19(6) and (7) of the Competition Act.

[7] Section 19(4) of the Competition Act.

[8]Available at http://www.livemint.com/Industry/uzSqE22Uk4Lgt1jX8PjCOJ/CCI-to-Trai-Consult-us-on-predatory-pricing-issues.html.

[9]Vodafone/Idea, Combination Registration No. C-2017/04/502; Bharti Airtel Ltd./Tata Teleservices Ltd., Combination Registration No. C-2017/10/531.

[10] Vodafone India Ltd. v. Competition Commission of India, 2017 SCC OnLine Bom 8524.

[11] Sections 21 and 21-A of the Competition Act.

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