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Trai and CCI: no turf wars, please

LiveMint logoLiveMint 02-08-2017 Vikas Kathuria

Arecent letter by the chairman of the Competition Commission of India (CCI), D.K. Sikri, to his counterpart at the Telecom Regulatory Authority of India (Trai), R.S. Sharma, has once again sparked a debate on turf wars between the competition regulator and sector-specific regulators in India.

Sikri in his letter argued that the CCI is better placed to look into matters related to predatory pricing than Trai. This letter comes against the backdrop of a consultation paper floated by Trai in February, where the telecom sector regulator sought to deal with predatory pricing issues in the telecom sector. Hitherto, the understanding was that ex-ante competition matters fell in the domain of Trai, and ex-post matters such as predatory pricing were the turf of the CCI.

In very simple language, predatory pricing is a strategy where the dominant market player prices its products or services below costs to undercut its rival. It is easy to see that with its unmatched resources, the dominant player can sustain losses in the short run, only to recoup the same in the long run when the competitors have already bled to death.

However, it is important to note that only a dominant position holder can be punished for engaging in predation. In turn, dominant position is determined based on market share. Generally, a firm is considered to be a dominant position holder if the market share is significantly high (generally above 50% in the European Union), barriers to entry are also high, and there is no countervailing buyer power.

This is the framework that competition bodies all over the world, including the CCI, employ. Predatory pricing is a highly specialized field of competition assessment requiring both expertise and experience, which a competition body can readily employ. For this reason, the world over, checking predation is one of the mandates of competition law. Also, ex-ante and ex-post division of powers, respectively, between sectoral regulators and competition agencies is a proven way to avoid turf wars.

The limited mandate of Trai is also to promote competition. However, Trai can ensure fair competition through means other than acting against predatory pricing. Last year, Reliance Jio Infocomm Ltd started giving free voice and data services in promotional offers to its subscribers to increase its customer base. The incumbents in the telecom sector, Vodafone India Ltd, Bharti Airtel Ltd and Idea Cellular Ltd, alleged in their several complaints before the CCI that Reliance Jio was engaging in predatory pricing. Arguably, it was not fair competition as the “promotional offer” went on for several months.

However, the complaints before CCI bore no results, as Reliance Jio was not in a dominant position. Thus, the way CCI understands and acts against predatory pricing in the present scheme of legislative mandate is bound to leave an enforcement gap through which cases like Reliance Jio can leak. These are the gaps that Trai can fix ex-ante to ensure fair competition.

Trai could either limit the duration of promotional offers, which include below cost pricing, or it could increase the interconnect usage charges (IUC) from the current 14 paise per second to a point where below cost pricing becomes unsustainable. So far as promotional offers are concerned, Trai realizes that the present scheme of promotional offers may result in unfair and anti-competitive measures. To this end, Trai has asked in the consultation paper several crucial questions, such as, “Which tariff offers should qualify as promotional offers? What should be the features of a promotional offer? Is there a need to restrict the number of promotional offers that can be launched by a TSP (telecom service provider), in a calendar year, one after another and/or concurrently?”

In the same consultation paper, Trai has sought stakeholders’ views on defining relevant market. It is true that the telecom regulator also requires delineating relevant market. For example, defining relevant market is the first step to assess if a telecom firm has significant market power (SMP). In turn, an SMP firm is subjected to specific ex-ante regulations in India.

While the telecom regulators resort to the competition law framework to delineate relevant market, it is quite possible that the telecom body and competition body reach different results. This may be because of different perceptions of substitutability between products or services that are the subject matter of enquiry. The Trai consultation paper points out some international cases where the regulator and competition authority had defined relevant market differently. Additionally, new technology such as VoLTE (Voice over Long-Term Evolution) also has the potential to redefine relevant markets. Consequently, it is a prudent step by Trai to invite comments from the Indian stakeholders, so far as defining relevant market is concerned.

This prudence, however, would turn into usurpation of power if Trai seeks to extend its jurisdiction to the ex-post competition cases as well. These ex-post cases, such as predatory pricing, are better left to CCI that not only has a robust legislative framework, but also a growing body of jurisprudence to assist informed decision-making.

Telecommunications is a highly technical sector. Even though ex-post cases where competition is an issue should fall within the domain of CCI, the highly technical nature of these issues necessitates a consultation with Trai that is a specialized regulator. Therefore, to ensure consumer welfare, a spirit of camaraderie between these two modern regulators is the need of the hour.

Vikas Kathuria is assistant professor with Bennett University, Greater Noida, and a former research associate with CCI.

Comments are welcome at theirview@livemint.com

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