It was in the year 2017 that one of India's leading telecom players, Bharti
Airtel Limited, alleged contravention of certain provisions of the Competition
Act, 2002, by the then new entrant into the market, Reliance Jio Infocomm
Limited (RJIL) and its parent entity Reliance Industries Limited (RIL). If we
were to rewind back to the year 2016-17, it was the time when the telecom market
in the country was resonating with the sound of JIO. Reliance Jio had made its
debut into the segment in the second half of 2016, and its attractive and
well-marketed voice calling and internet service offers had become the talk of
Soon, people started queuing up in huge numbers to get their hands on
a Jio SIM in order to benefit from what was then branded and sold as 'free
internet'. Even after Jio's initial, freebie-heavy offers came to a stop, the
telco continued to offer services at throwaway prices, forcing the incumbent
companies to slash their prices in order to compete with it.
What Jio did was this- offer free services, slash prices and gain market share,
and penetrate the market really quick to capture the customers through its
appealing pricing tactics. The incumbent Bharti Airtel then approached the
country's antitrust regulator, the Competition Commission of India (CCI),
accusing Reliance Jio of indulging in predatory pricing.
The crux of Airtel's
allegations, pertaining to violation of Sections 3 and 4 of the Act, was as
- Abuse of dominance through predatory pricing [Section 4 (2)(a)(ii)]
- Anticompetitive agreement between RIL and RJIL (Section 3)
The Commission dismissed the above allegations of anti-competitive practices by
Reliance Jio, emphasizing that it did not hold a dominant position in the
relevant market where it was a fresh entrant. This is where the heart of the
problem lies- determining an entity's dominant position to ascertain abuse.
Under the Competition Act, 2002, abuse of dominance by an enterprise is
prohibited under Section 4. Of the several ways and methods by which an
enterprise can abuse its dominant position, use of predatory pricing methods is
what Airtel had accused Reliance Jio of indulging in. Additionally, it alleged
that RIL, the parent entity, was in contravention of Section 4(2)(e) of the Act
as it has allegedly used its financial strength in other markets to enter into
the telecom market through RJIL.
The Commission, in its order in the instant case, noted "that financial strength
is relevant but not the sole factor to determine dominant position of an
enterprise. Considering comparable investments and financial strengths of
competitors, the success of OP-2 (RJIL) in managing large scale investments does
not suggest dominant position being enjoyed by OP-2.
The Commission does not
find it appropriate to hold OP-2 dominant in a scenario where its customers
constitute less than 7 per cent of the total subscriber base at pan-India level,
various functions of telecom service providers are regulated and entrenched
players have been in existence for more than a decade with sound business
presence, comparable financial position, technical capabilities and reputation.
Even if one were to consider 4G LTE services as the relevant product market,
OP-2 is not likely to hold dominant position in such market on account of the
presence of the Informant, Vodafone, Idea, etc., who derive commercial and
technical advantages due to their sustained and sound business presence in other
telecom services. It needs to be appreciated that OP2 is a new entrant, who has
commenced its business recently i.e., from 5th September, 2016. In the absence
of any dominant position being enjoyed by OP-2 in the relevant market, the
question of examining the alleged abuse does not arise."
Here lies the crux of the argument against the allegations of the second charge,
i.e., abuse of dominance by Jio in violation of Section 4(2)(a)(ii). The
Commission added "that providing free services cannot by itself raise
competition concerns unless the same is offered by a dominant enterprise and
shown to be tainted with an anti-competitive objective of excluding competition/
competitors, which does not seem to be the case in the instant matter as the
relevant market is characterised by the presence of entrenched players with
sustained business presence and financial strength. In a competitive market
scenario, where there are already big players operating in the market, it would
not be anticompetitive for an entrant to incentivise customers towards its own
services by giving attractive offers and schemes.
Such short-term business strategy of an entrant to penetrate the market and
establish its identity cannot be considered to be anti-competitive in nature and
as such cannot be a subject matter of investigation under the Act."
The Chicken or Egg dilemma: Ascertaining predatory pricing
Section 4 of the Competition Act, 2002, describes direct or indirect imposition
of unfair or discriminatory price by an enterprise in purchase or sale of goods
or service, including predatory pricing, as an abuse of dominance by it. The Act
defines predatory prices as "the sale of goods or provision of services, at a
price which is below the cost, as may be determined by regulations, of
production of the goods or provision of services, with a view to reduce
competition or eliminate the competitors."
However, a precondition to a charge of predatory pricing is a dominant position
held by the enterprise in question. Again, under the Act, dominant position
means "a position of strength, enjoyed by an enterprise, in the relevant market,
in India, which enables it to- (i) operate independently of competitive forces
prevailing in the relevant market; or (ii) affect its competitors or consumers
or the relevant market in its favour."
To break it down, while predatory pricing is a way in which an entity is said to
engage in the anticompetitive practice of abuse of dominance, a dominant
position has to be held by an entity for it to be probed for abuse of dominance.
This is where the classic causality dilemma comes into the picture. Say an
entity A is a fresh face in a market, where it sells its services way below the
cost of production, forcing competitors to either compete by sustaining losses
or bow out.
The entity A does so on account of its deep pockets, or the pockets
of its parent firm, which invests substantially in it thereby enabling to
disrupt, penetrate and capture the market. What entity A is doing clearly fits
into the definition of predatory pricing under the Act.
However, since entity A
is a new entrant, it cannot be said to have held a dominant position, thus
nullifying any allegations of predatory pricing on its part. Going by this
restricted interpretation of the provision, a lot of activities by businesses
that may have an anticompetitive effect on the respective markets would go
unpunished, solely on the technicality that they are new players.
e-commerce companies to tech bigwigs, the increasingly popular cab aggregator
platforms to online businesses, many such entities have made a similar,
disruptive entry into various markets using pricing and discounting tactics that
fall within the grey area of predatory pricing by new entrants. [i]
A similar approach was taken by the CCI in the case of Bharti Airtel v Reliance
, where it held that because RJIL was a new entrant in the Indian telecom
market, it did not hold a dominant position. This case shed light on how
predatory pricing is treated only as an after-effect of an entity's dominant
position instead of also looking at predatory pricing tactics as an indicator of
Determination of Section 4 violation: Abuse of dominance
When the CCI looks into a charge of Section 4 violation, i.e., abuse of
dominance by an enterprise, it checks of certain elements to arrive at a
conclusion. Starting from delineating the relevant market in which the said
enterprise operates, it looks at whether or not a dominant position is held by
the enterprise under investigation. If the answer to this question is in the
affirmative, that is when it moves on to the next and final step of probing an
abuse of the dominant position. [iii]
A dominant position held by the entity is not per se bad or illegal, but such
entities are held to a higher standard of responsibility in terms of how they
operate in the market. The idea is to ensure that the objective of this act,
that is to maintain and ensure competition in the market, is upheld. Also, such
dominant players are required to adhere to the standards and refrain from any
practices that would come within the ambit of abuse of dominance.
The reason why
the Act applies only to abuse by the dominant firms is because of the
presumption that a small firm will lose its customers to its competitors if it
charges excessive prices, while customers might have nowhere to turn to if a
dominant firm charges an excessive price.
Moving on to the determination of whether or not an entity holds a dominant
position in the market, there are several factors listed under Section 19(4) of
the Act. Although the market share or power of an enterprise is what usually
figures into most discussions around dominant position, it is not the sole
There are several other factors that the CCI is required to
take into account, like the size and resources of the enterprise, countervailing
buying power, size and importance of competitors, entry barriers (like financial
risk, regulatory barriers, high capital cost of entry, high cost of
substitutable goods or service for consumers, etc.), market structure and size
of market and vertical integration of the enterprises or sale or service network
of such enterprises, among other things.
Need for re-examination of the regulatory mechanism
In the case of Meru Travel Solutions Pvt Ltd v Uber India Pvt Ltd
Director General in his report noted that while market shares of the enterprises
are a good first indication of dominance, there are other factors at play too.
The DG then looked at factors like financial resources and the availability of
funds at the company's disposal to assess its position in the market. As
mentioned earlier, one of the factors in determining an entity's dominant
position is the vertical integration of such enterprises.
Going back to the case
of Bharti Airtel v Reliance Jio
, the non-dominant position of Jio in the telecom
scenario was used to disregard any accusations of abuse of dominance through
predatory pricing. However, the fact that the sustained and substantial
investments into Jio by the parent RIL was an indicator of its ability to
distort competition in the market. It was able to bear and withstand losses over
a certain period owing to the support lent to it in the form of investments or
the deep pockets of RIL.
While large investments are to be viewed as a positive
sign of a healthy business environment, however, the same should not have
overpowering anticompetitive effects on competition in the markets. This is
where the antitrust regulator restricted itself to a very narrow interpretation
of the provision, without reading it in the larger context of the core object of
Similarly, in the case of Meru v Uber
and that of Fast Track Call Cabs v ANI
Technologies (Ola Cabs case)
[v] before that, the newly-entered cab aggregator
platforms were let off the hook by the Commission on the ground that they did
not hold a dominant position in their respective relevant markets.
deep-discounting methods that were predatory in nature and worked to eliminate
competition in the market were not deemed to be an abuse of dominance since they
were seen to exert competitive constraints on one another. For instance, Meru
had pointed out that in the Ola Cabs case, Uber's presence in the market was
seen as constraint on Ola becoming dominant, while the reverse was said to be
true in Meru v Uber
This, the appellant Meru Cabs had said was contradictory in
itself. However, the Commission responded saying that the delineated relevant
markets in the two cases was different and also such competitive constraints are
not always unidirectional in nature.
The above argument can again be applied from the lens of economic power of the
enterprise including commercial advantages over competitors as a factor for
ascertaining dominant position. This was also not taken into account by CCI in
the telco predatory pricing case.
The regulator's approach has been the same in
quite a few cases, where it rejected any investigations into entities accused of
predatory pricing on the sole grounds that they were new entrants that were not
dominant in the relevant markets. This was done regardless of the fact that
their pricing tactics were having an effect on the competition in the market,
despite them being non-dominant entities.
- 2021 SCC OnLine CCI 43
- Fast Track Call Cab Pvt. Ltd. v. ANI Technologies Pvt. Ltd., 2017 SCC OnLine