RJio’s tariffs, for instance, wreaked havoc on all telcos; but even an Air India bailout or oil subsidies destroy markets.
Finance minister Arun Jaitley has done well to warn the Competition Commission of India (CCI) of the dangers of hyper-competition, from putting undue pressure on rivals and even destroying an industry, to unrealistically low bids in government tenders. The excessively low bids coming in for various renewable energy projects have already driven down prices while it is not clear if the projects can actually be completed at those prices; and we have seen various infrastructure projects that have been won with very competitive bids, only to be renegotiated later. Of course, even if CCI were to rule against these bids, it is not clear how the CAG or the courts would look at this given the importance given to L-1 in all national discourse; anyone who rejects an L-1 bid, for whatever reason, is almost certain to be labelled corrupt and will face action from either the CBI or the courts.
Jaitley’s warning, sadly, comes too late for the older telecom players who have seen their bottomlines ravaged after RJio came up with all manner of promotional offers that the industry felt were predatory in nature. While CCI found no merit in the petition against RJio’s pricing, the telecom regulator, Trai, went even further and, after saying RJio’s tariffs were okay, came up with a consultation paper on how market power was to be defined! While CCI definitions are no longer just about market-share, Trai defined ‘significant market power’ as a telco that controlled 30% of the market—so, even if RJio provided free services, till its market share reached 30%, it could not be investigated; and market share was defined in terms of revenues, not telecom capacity. Till now, as part of the plan to keep telephony affordable and to encourage telcos to invest, telcos used to pay one another an Interconnect Usage Charge (IUC) each time their subscribers called another network. Logically, then, any tariff below the IUC would be predatory. Not only did Trai reject this argument, it also wanted to abolish IUC altogether and, in the interim, slashed IUC rates. An immediate consequence is that the older telcos are trying to shut down their 2G networks since they don’t make enough money on them—with a higher IUC, they earned more whenever anyone called these subscribers—and are aping RJio in moving to more data-heavy rental plans where all subscribers need to upgrade their phones and pay a higher monthly rental in order to avail the “free voice” calls that have, post-RJio, become the industry standard.
Jaitley’s warning, of course, affects more than just telcos. The huge bailout being given to Air India, it is clear, is anti-competitive since free money allows Air India to offer lower prices or keep offering capacity which, in turn, keeps realisations low for everyone. Theoretically, infusions into Air India are on a par with, say, a Naresh Goyal putting in money into a Jet; but not quite since Goyal needs to deliver a certain performance while Air India gets the money free from taxpayers; after a point, Jet will shut down, but Air India can carry on for decades. Or take oil PSUs that have been told to give discounts on petrol and diesel. They will absorb the losses and, if need be, they will get funds from the government; but this puts unfair pressure on private sector marketing companies like Reliance who now have to match this or simply see their markets disappear. It is not just CCI, the entire government needs to understand the import of what the FM said; chances are neither will.