Predatory Pricing : JIO cases

, December 28, 2017, 0 Comments

jio-airtel-competition-act-india-marketexpress-inThe Commission notes that after the opening up of telecommunication market to private players, this market has witnessed entry of a number of players competing with each other, resulting in decrease of tariffs and constant improvements in quality and variety of services.

The allegations against Reliance Jio Infocomm Limited by Bharti Airtel Limited in Case No. 03 of 2017 are that of predatory pricing which is in contravention of Section 4(2)(a)(ii) of the Competition Act and Reliance Industries Limited use of financial strength in other markets to enter into the telecom market which is in contravention of Section 4(2)(e) of the Competition Act.

Similar allegations were made in Case No. 98 of 2016, to establish abuse of dominance, namely :

1. Huge investment of Rs 1,50,000/- 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.

2. Reliance is providing the same services at a discount of 90% – predatory pricing.

The CCI closed both the cases under Section 26(2) of the Act, saying that it is difficult to construe Reliance Jio Infocomm Limited is in a 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 anti-competitive 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.”

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.

Anupam Sanghi Associates Comment: CCI does not support its reasoning with actual market data on customer behavior in the present market. A view on predatory pricing is incomplete without examining the “effects” of predatory pricing strategy on the existing competitors and whether the predatory strategy is designed to harm consumer welfare by leaving them with no choice after they are captured.

Considering Jio’s strategy of zero pricing was to penetrate a new market ( 4G ) – the Commission does not assess interchangeability of 2G, 3G, 4G from both demand and supply side in the present market conditions but goes by the futuristic technology evolution where eventually consumers would switch to 4G.

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