India’s telecom sector could face another test, this time from CCI

The telecom sector could face another test, this time from the Competition Commission, after two of the four service operators said they would raise prices for their services. Telecom operators Vodafone Idea and Bharti Airtel have announced plans to raise tariffs for their subscribers with effect from December 1. The almost joint announcement made on Monday was a surprise, according to analysts. It would be the first telecom tariff hike in several years and follows record second-quarter losses reported by the two operators of Rs 73,822 crore.

While the companies did not provide any guidance on the amount of the hike or the subscriber segments to be impacted by the move, the simultaneous move could raise eyebrows as it comes seemingly close to a cartelised price decision. But does that make them the subject matter of the fair trade regulator, the Competition Commission of India (CCI)? Both current and former members of the Commission acknowledged this as a possibility, but only so at this stage. Incidentally in an interview with PTI this year CCI chairman Ashok Kumar Gupta has said he plans to conduct a study about the Indian telecom sector to assess various competition aspects. He had said the study would begin in November for which preparatory work had already begun.

Independent of such studies, CCI walks into cases where there is one of three possibilities—of anti-competitive agreements, of abuse of dominant positions or of combinations (mergers and acquisitions) to dominate markets.

Since the third option is ruled out in the case of price rise, the regulator would have to decide if there is a case made out under either the first or the second options. Remember, CCI does not need to wait to pick up cases only after it is approached by an affected party, it can and has done suo moto cases too.

Section 3 (1) of the Competition Act reads: “No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India”.

While this might seem to apply in a cut and dried manner to the planned price rise, it isn’t quite simple either. A critical test in this context is to determine whether the companies have acted in concert. Section 3(2) reads: “Any agreement entered into in contravention of the provisions contained in subsection (1) shall be void”. Just because the two companies have both felt the need to raise the prices of possibly both their voice and data plans does not make it an agreement unless the investigation wing of the CCI can prove so. Major companies with reputations to protect never do so. This is the reason why the CCI has rarely been able to prove satisfactorily to courts that companies have colluded. It has tried to prove those through legal means instead of using basic economic principles to arrive at an understanding of what constitutes a collusive behaviour.

This then leaves CCI with the sole option of deciding whether there has been an abuse of a dominant position by the two companies.

Section 4(2) of the Act reads: There shall be an abuse of dominant position…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.

There is no doubt that in the three-horse race (excluding BSNL\MTNL) which is the Indian telecom sector, each company has a dominant position. So CCI does not need to prove that the two companies acted together. But then does that also imply that raising of the prices of their products implies a predatory behaviour?

One of the ways in which CCI has extended its reach is by negating the role of network externality as it did in the case of a penalty imposed on Google. Essentially the regulator redefined what it felt was a market to impose the ruling. Could market dominance then be also interpreted accordingly.

―Authored by Subhomoy Bhattacharjee, Consulting Editor, Business Standard