With over 30% share in 5 circles, telco could invite Trai’s predatory price penalty.
Reliance Jio may find it difficult to play the tariff card, at least in the five telecom circles where it has acquired a market share of 30% or more. The five circles are C category circles of Odisha, Assam, Himachal Pradesh, Bihar and Madhya Pradesh, where the paying capacity of subscribers is seen as low, and it is here that Jio has grown in a big way in the last few months on the back of its Rs 500 JioPhone, which is a 4G-enabled feature phone. Apart from the tariff card and cheap phone, another reason for Jio doing well in the C category circles is that it offers a fully 4G service whereas the roll-out of 4G services by the incumbents in these circles is relatively poor.
However, analysts now see it difficult for Jio to slash tariffs further in these circles without inviting the penal provisions of predatory pricing. The reason for the constraint will be a Telecom Regulatory Authority of India (Trai) regulation issued in February on predatory pricing, which imposes a penalty of up to Rs 50 lakh per circle on mobile operators if they are found to indulge in such practices.
Defining for the first time predatory pricing, Trai had, in the regulation, said a tariff will be considered predatory if in a relevant market an operator with over 30% market share offers services at a price that is below the average variable cost, with a view to reduce competition or eliminate the competitors in the relevant market. At that time Jio did not have 30% market share in any circle, but incumbents like Bharti Airtel, Vodafone or Idea Cellular did. This meant that while Jio could offer below-cost tariffs, the incumbents could only match them, but could not have the first-mover advantage.
In fact, the whole exercise by Trai to define predatory pricing was started after Reliance Jio entered the market in September 2016 with free services, resulting in incumbent operators to protest and call the offer as predatory.
According to Trai’s regulation, variable cost will be arrived at after deducting fixed cost and share of fixed overheads borne by the company from total cost incurred by it for running a business during the period under review.
Analysts said though these are early days, the trend of Jio garnering higher market share (read 30%) across circles will gradually grow, thus limiting its tariff card strategy of beating the incumbents.