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  1. Why TRAI’s predatory price order makes little sense

Why TRAI’s predatory price order makes little sense

Modern competition law looks at abuse, not market-share in the manner Trai is doing. It is also unfair to older telcos

By: | Published: February 22, 2018 5:29 AM
TRAI, TRAI predatory price order, Competition Act, traffic shares, market share of the enterprise, Vodafone, idea, reliance jio, india The optics of the order are even worse since the context is the allegation of predatory pricing that some of the older telcos have made against RJio. (PTI)

Given how modern competition law has moved beyond the old concepts of market share—enshrined in the old MRTP law in the case of India—to measure the abuse of dominance, it is odd to find telecom regulator Trai sticking to the old market-share model when it comes to examining allegations of predatory pricing. Indeed, the Competition Act talks of the Competition Commission of India (CCI), while examining whether there has been an adverse impact on competition, looking at whether there are attempts to create “barriers to new entrants in the market” or attempts to drive “existing competitors out of the market”, among other factors. And, while CCI does not lay down any ex ante definition of market power—as Trai seeks to do—the law talks of some factors that will be examined while determining a dominant position—this includes the “market share of the enterprise”, the “size and resources of the enterprise”, “size and importance of the competitors”, “economic power of the enterprise including commercial advantages over competitors”, etc. While the Competition Act allows for the possibility of a new entrant with deep pockets distorting the market, Trai seems to believe only an incumbent telecom operator who enjoys “significant market power” can distort the market. It is also odd to see a sectoral regulator like Trai trying to muscle in on what should clearly be the territory of the CCI.

The optics of the order are even worse since the context is the allegation of predatory pricing that some of the older telcos have made against RJio. Some of these telcos had also petitioned CCI on the matter early on, and since CCI had found no merit in the charges, it is not clear if the competition regulator will reverse its view on the matter if these telcos approach it again. But, by saying that a telco will be considered to have “significant market power” only if it has a 30% share in a relevant market, Trai’s order means that RJio cannot be investigated for predatory pricing even if it offers its services for free since it is very far from this threshold. And, since the older telcos like Bharti Airtel (when its merger with Telenor and Tata Teleservices is complete) and Vodafone and Idea (when their merger gets all regulatory approvals) all cross this threshold, there can be a situation where, while they are responding to RJio by matching its tariffs, they are investigated for predatory pricing.

Nor it is clear why Trai has changed the existing definition of “significant market power” to remove switching capacity and traffic shares and retained only revenue and subscriber shares for calculating this—RJio has a high share of both switching capacity and traffic but a low share of the others. Nor is it clear why Trai has chosen to define predatory pricing as tariffs that don’t even cover the average variable costs in an industry where what matters most is not variable costs but fixed costs. Hopefully, many of these issues, including the power of a sectoral regulator to muscle in on CCI’s turf, will be decided by the courts as and when telecom operators decide to challenge the order.

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