New Delhi: Bharti Airtel Ltd, Idea Cellular Ltd and Vodafone India Ltd are free to match tariffs offered by newcomer Reliance Jio Infocomm Ltd in circles where they have a dominant position and such actions will not be seen as predatory, two officials at the Telecom Regulatory Authority of India (Trai) said.
Trai’s view clears the air on what constitutes predatory pricing. The issue has deepened cracks within the industry, with Mukesh Ambani’s Reliance Jio on one side and the rest on the other. Operators on both sides have sparred publicly on issues ranging from points of interconnect to interconnect usage charges since September 2016, when Reliance Jio started commercial services.
“For example, if Airtel is a significant market player in a circle then its actions have to be watched. If Jio comes with an aggressive tariff in that circle then customers will flock to Jio. Any rational service provider will try to match it. The mere act of matching the Jio price cannot be considered predatory because it is reactive,” one of the two Trai officials cited earlier said, requesting anonymity. “But if you are doing it to drive out competition then it is predatory.”
Trai issued new norms on 16 February under which it will examine tariffs of a significant market player (SMP)—which is an operator holding a share of at least 30% of total activity in a relevant market—to determine the existence of predatory pricing. It will also look at whether the tariff is below the firm’s average variable cost over a certain period. If the tariff is found predatory, an operator will be liable to pay a penalty of up to Rs50 lakh per tariff plan per telecom circle. The definition of “total activity” is based on any of two parameters—subscriber base and gross revenue.
If you take subscriber base as the parameter, as of 31 December, market leader Bharti Airtel is an SMP in nine circles and the Vodafone-Idea combine is dominant in 12 circles, data compiled by BloombergQuint showed. If you consider gross revenue market share, then Airtel is an SMP in 15 circles and the Vodafone-Idea combined in 13 circles. There are 22 circles, or licence areas, in the country.
Incumbent operators say that the new order takes away the flexibility to compete and retain customers in a circle in which they are SMPs. However, the Trai order also mentions that it will look at evidence of a specific intent to engage in predatory pricing.
“The SMP is free to match a price as long as it can justify it to Trai, that is make a business case with the reasons for bringing down the price. Being an SMP and offering below average variable cost alone would not make your pricing predatory,” said another official, requesting not to be named.
Incumbent operators also say that the change in Trai’s definition of “total activity” will result in an unfair advantage to Reliance Jio, which enjoys huge traffic on its network. The new definition of “total activity” is based on any of two parameters—subscriber base and gross revenue—while an earlier definition included subscriber base, revenue, switching capacity and volume of traffic.
“These parameters were a part of Trai’s own criteria in the past. As a result, victims have now been made the perpetrators. In a cruel twist of fate, one operator, who by its own admission is the world’s largest data network, may be free to offer any sort of predatory tariffs, while older operators are now subject to regulation and cannot compete without falling foul of a new definition of what constitutes predatory pricing,” Rajan S. Mathews, director general of lobby group COAI (Cellular Operators Association of India), said in a statement on 20 February.
But the regulator claims that the earlier definition was for the purposes of interconnect, while the new definition is for tariff principles. “Earlier definition needed switching capacity and volume of traffic (as parameters) because it was for interconnect…networks have to talk to each other through interconnect points and hence it has to follow some technical criteria. But, this (tariff) is different. Definition has to serve a purpose in a particular context. By taking revenue and subscribers, Trai has not committed anything,” the first official cited above said.
Meanwhile, Vodafone on Monday termed Trai’s new rules as ‘unfair’, according to a PTI report from Barcelona, where the Mobile World Congress is taking place. When asked if he believes that the latest rule favours new players and if the company will challenge it, Vodafone Group CEO Vittorio Colao responded affirmatively.
COAI too, without naming Reliance Jio, said Trai’s recent orders, including the latest tariff order amendment, “seem to be strengthening the ambitions of one particular operator with deep pockets and monopolistic designs at the expense of other operators”. Responding to this, Jio on 23 February sought a public apology from COAI and asked it to immediately cease and desist from publishing false and defamatory imputations against Reliance Jio.
Reacting to Reliance Jio’s statement, COAI on 24 February, said its differences were with the orders of Trai and not with any specific operator. But, in fresh salvo fired on Monday, Reliance Jio, in a letter to COAI dated 26 February, reiterated its demand for an apology against “defamatory statement” and stated once again that it reserves rights to initiate appropriate proceedings in accordance with law.livemint