BY Raima and Amishi Jain, SECOND-YEAR STUDENTS AT RGNUL, PATIALA
Introduction
The Indian Telecom industry is an influx of service providers, each claiming to bring about a digital revolution while catering to the interests of the consumers. The ethos of competition in India, provided by the Competition Act, 2002(hereinafter, “the Act”), often proves to be rigorous and rather malleable to the dynamic competition in the country. Creating a storm in the telecom industry is Jio, which recently cemented its position as a leader by gaining over three million users. It has often attracted scrutiny for its anti-competitive practices from various market players, inviting a greater need for better functioning of the Competition Commission of India (hereinafter “CCI”). This article aims to shed light on the working of the CCI, making it imperative to take a look at the decisions of the CCI, with respect to one of the biggest corporations in India; Reliance.
Reliance: A Mega Saga of the Market Player
Reliance is known for employing market tactics to avoid scrutiny for ‘abuse of dominant position’, such as with Jio. However, as discernible in Shanmugam v. Reliance Jio Infocomm Ltd., it has often escaped the scrutiny of CCI. Such strategic measures to control the market are especially evident in this case. Through careful navigation of regulatory allegations, the tactical manoeuvring marks its journey from 2016, to the newly formed Disney+ Hotstar Reliance merger, which is now dominating the market.
Predatory behaviour: Reliance Jio
Reliance Jio dominates the allegations of predatory pricing in the ‘telecom sector’, a term linked to its entry in the market. Through the massive disruption brought in 2016, Jio reduced the number of competitors in the market from 11 to 3, and also brought huge changes in the price of internet. The entire trajectory of growth of the telecom sector changed with its introduction. Nonetheless, the predatory pricing allegations against the same were dismissed for it was a newcomer.
Since its launch, other service providers have approached the Telecom Regulatory Authority of India (“TRAI”), with complaints dismissed due to lack of evidence or flexibility. With a latent pattern of growth, such predatory players function with policies based on cycles of sacrifice and recovery, through which they lower prices and eventually increase them to recover losses, thus, harming market competition.
Such motivations necessitate close scrutiny of the CCI along with developing a robust and flexible framework to address such problems at the optimal time. Since the merger signifies similar curated patterns of dominance, it becomes imperative to regulate potential threats to the telecom industry.
The Telecom Titan
The Disney+ Hotstar Reliance merger raises further concerns about antitrust violations. It would become a media behemoth which could account for over 30% of the market. The issues brought forward by such a merger may invite scrutiny from the CCI due to the stir it has caused in the OTT market of India.
Increased dominance and detriment to consumers
With the formation of an over $8.5 billion entity, the merger is bound to dominate the sports sector, important in Indian OTT, with a staggering consumer base. This sector, which was largely under the garb of Hotstar is bound to expand due to the wide consumer base of Jio Cinemas. The superiority of the merger, in both sports and cinema, proves to be detrimental to television players who stand at the risk of becoming obsolete. This will further affect price-sensitive consumers, who cannot afford other subscriptions.
Underlying issues
Mergers often lead to a modest increase in price. This is substantiated by the Merger Review Policy laid out by the Federal Trade Commission of the US, as to how the merger of two firms with substituting products results in greater power to increase prices, reducing the alternatives available for the consumers in the market. This merger depicts a similar nature by reducing the alternatives available to consumers in the market and potentially driving the withdrawal of other players. It adds to the existing competition faced by international players in the OTT market, which triggers their removal, ultimately affecting the diversity of the content available to the audience.
Wave of further mergers
A similar pattern of hegemony was witnessed in 2016, when Jio stimulated a series of mergers in its wake. Vodafone Idea and Bharti Airtel merger in 2017, BSNL and MTNL merger proposed in 2019; all while it further strengthened its pre-eminence.
Reliance also sought approval from CCI for a merger of Viacom18 and Star India Pvt. Ltd. (SIPL). The merger can amount to over 40% of the total viewership in India, causing a serious imbalance in viewer distribution.
It can be juxtaposed to the Zee-Sony merger, wherein both had to comply with CCI’s action against the merger. CCI had given conditional approval that required the divestment of Zee from certain channels. Without this action, Zee-Sony would have taken charge of 75 channels. Star-Viacom merger is likely to amount to 115 channels as a combined entity, leading to a hegemonic position resulting in Appreciable Adverse Effect on Competition (“AAEC”).
The Supreme Court of California in Continental Car case observed that an undertaking is in a dominant position when it has the power to behave independently without consideration of its competitors. The same has found relevance in Section 4(2) of the Act, which restricts actions done by dominant enterprises to deny or restrict market access, for abuse of dominance. When the Zee-Sony merger takes 115 channels with 35% of the viewership, other market entities will likely lose market access. Hence, it is probable for CCI to intervene in this merger, similar to Zee-Sony, and pose conditions for a divestment.
The Competition Act in the Realm of Development
A major function of the CCI is elimination of anti-competitive practices that may impede healthy competition in the market. However, a drawback of the Act is that it is curative, rather than preventive. By the time the CCI penalises a firm, market dynamics change.
Mergers are an alternative for firms to dominate the market other than the popular method of predatory pricing. It is regulated by Section 6 of the Act, by the term ‘Combinations’. Due to this, Competition (Amendment) Act, 2023stipulates that any merger needs to be notified to the CCI if it crosses a certain threshold or any of its transactions surpass it in terms of turnover. The threshold takes into account the geographical limits as to the operation of the business. In a hopeful tandem with the Act, Parliamentary Standing Committee presented a report to keep a check on the ‘winner-takes-most’ phenomenon, as a company that reaches a certain number of customers can gain an unfair advantage over other companies by indulging in anti-competitive practices.
Practices of Reliance serve as a guide for the market on how to operate, and for CCI on how to do its utmost to prevent anti-competitive practices. However, due to overlapping jurisdictions and lenient policies, market dynamics remain at risk of being imbalanced, inviting a need for reforms.
The Way Forward
Coordination between Sectoral Bodies
The working of the CCI and sectoral authorities like TRAI should be in tandem, rather than promoting a situation of ‘CCI v. TRAI.’ This calls for an enhancement of coordination and interoperability. It is imperative to formulate a pro-consumer business-friendly model as CCI works towards ensuring ease of doing business and the telecom sector ensures service standards. Claiming a single industry as ‘turf’ will lead to overlapping issues between different sectors. To avoid failure of consultations in a situation of ‘CCI v. TRAI’, the regulatory bodies should not draw hard line boundaries and instead work in tandem to avoid deferring cases to further high-powered committees.
Cross-Border Benchmarking
The situation calls for structural and behavioural remedies to be implemented by CCI. In the cases of Holcim v. Lafargeand Sun Pharmaceutical v. Ranbaxy Laboratories, CCI proposed divestment of a few plants to eliminate the anti-competitive element. Behavioural remedies including ‘hold separate provisions’, which ensure that the merger is run as separate from independent businesses, may be desirable to reduce the anti-competitive concerns which may arise due to such a horizontal merger.
The CCI is recommended to conduct market surveys, merger impact assessments, and pre and post-merger analysis to ensure fair competition to complement its regulatory framework.
Complimentary Models
In consonance with the non-performance of the CCI, a de novo bill such as the proposed Digital Competition Bill, 2023, which is ex-ante as opposed to the ex-post model of the Act, is imperative to implement a rigorous procedure. Instead of correcting, there should rather be prevention of market imbalance. Models should be employed to end monopolistic practices.
Furthermore, borrowing from the US Model, CCI can use a program to disallow mergers with anti-competitive conduct, which creates an appreciable risk of materially lessening competition and ending platform monopoly. A similar legislation could help protect firms when Indian markets are highly susceptible to create AAEC when new mergers are created, such as the Star-Viacom merger. Monopolistic behaviour allows a company to disadvantage its competitors while hurting small businesses, consumers, and innovation. In a country with a number of upcoming small businesses, such a legislation could prevent them getting pushed out of the market due to platform monopoly.
Conclusion
Reliance, being a widely known and dominating market player for its ensuing market strategies, suggests ways of improving the regulatory framework. Though the Act and its amendments curb misuse of the market, they often fall short or the compensation is not enough.
The impending Disney-Reliance and Star-Viacom merger exemplifies the risks of market concentration and consumer interests. In addition to greater coordination between different regulatory sectors, it is imperative to incorporate complimentary models to restrain market imbalances, rather than correcting them post-occurrence. Thus, it remains essential to enhance coordination and adaptability to standardise the actions of dominant players like Reliance.
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