India: Are JIO Schemes Unfair?

Last Updated: 2 November 2017
Article by S.S. Rana & Co. Advocates

2016 witnessed a new entrant in the Telecom market! Jio, which not only came up with jaw dropping customer friendly offers which were not appreciated by its competitors. The new schemes introduced by Jio caused instability and insecurity amongst its competitors in the market with respect to the hold of their customers who drastically started shifting towards the more lucrative schemes being offered.

Free Services

In the pursuit of establishing a foothold in the Telecom Market, Reliance Jio made its presence felt by providing free services for 3 months. It came up with schemes which caused the competitors in market to alter their charges to a significant extent causing disturbance in their prevalent rates of business.

Telecom operators like Bharti Airtel challenged the aforesaid scheme of Jio as being in contravention to the provisions of the Competition Act, 2002, alleging them to be covered under the ambit of predatory pricing. The Competition Commission of India in the said case of Bharti Airtel Limited Vs. Reliance Industries Limited & Reliance Jio Infocomm Limited (Case No. 03 of 2017) held 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. 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. Short-term business strategy of an entrant to penetrate the market and establish its identity cannot be considered to be anti-competitive in nature.

Thus, the Competition Commission of India has clearly elucidated via the aforesaid judgement that providing services below the average variable cost does not amount to predatory pricing in contravention to the Competition Act (Section 4) unless it is coupled with abuse of dominant position and in the absence of the dominant position, the question of the abuse of such position does not arise.

iPhone with Jio

In its recent venture, Jio joined hands with Apple where Jio would offer free services worth Rs 18,000 pre-bundled with the iPhone 7 and iPhone 7 Plus. The offer would also extend to other iPhone versions including iPhone 6S, iPhone 6S Plus and iPhone SE as well for a period of 12 months. In India where the market for iPhone still remains expensive such offers are capable of attracting customers in market.

On the point of consideration as to whether such scheme would be anti-competitive under the provisions of the Competition Act, 2002 (Section 3), it is well established that such offers do not amount to anti-competitive practices. Though certain benefits are construed on the customer who purchases iPhone with Jio connection but this does not prevent the customers in the market from purchasing iPhone independently from the market or to buy a Jio connection without an iPhone. Thus, the said scheme is not anti-competitive!

The Competition Commission of India elaborated the aforesaid principle via its judgement in the leading case of Shri Sonam Sharma Vs. Apple Inc. USA, Apple India Pvt. Ltd., Vodafone Essar Limited, Bharti Airtel Limited (Case No. 24/2011) where it was noted that a consumer having a mobile handset (smartphone or otherwise) is free to exercise his choice for availing network services without any restrictions. Furthermore, the network operators do not require any particular handset to be purchased by the customer in order to avail its network services. Moreover, the lock-in arrangement of iPhone to a particular network was for only for a specific period and not perpetual, a fact known to prospective customer. The Commission observed that there is no restriction on consumers to use the network services of Airtel and Vodafone to the extent that the network services can be availed on any mobile handset, even an unlocked iPhone purchased from abroad. Also, a consumer who has purchased a locked iPhone in India and paid the unlocking fees is free to choose the network operator of his choice.

Conclusion

Although the schemes and offers brought forward by Jio would take a great toll on its competitors, they are very much legal in their approach. The Competition Commission of India strives for fair competition for greater good and ensures the prohibition of the practices that may be detrimental to a healthy market.

There may be instances where the goods and services provided by one entity may be remarkably lower priced than another but it is essential to determine the position of such entity in the market before categorizing the said practice as being against the Competition Act. It is only when such an entity in the market enjoys dominant position and reduces their prices for sale strikingly in order to eliminate competition can they be recognized as being predatory pricing which are unlawful.

It is worthwhile to mention that not all tie-in-arrangements end up being anti-competitive and only those agreements which restrict the perpetuation and continuation of fair competition are classified as being opposed to the law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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