On January 22 2021, Competition Commission of India (CCI) released its key findings and observation through its market study on the Telecom Sector in India. This study explores the recent evolution in the sector, traced out the challenges faced by the operators, highlighted the emerging opportunities for the new as well as existing operators. Apart from this, it also recommended some measures to ensure the dynamic growth of the sector.
CCI has been conducting various market studies to provide an overview of the emerging issues in different sectors of the Indian Economy. Recently, it had released the market study on E-commerce in India, where it provided a detailed analysis of competition issues in the e-commerce sector. Also, it will be conducting a market study on Merger and Acquisition (M&A) in the digital market, investments made by PE investors in India, Pharmaceutical Sector and many others.
This article has tried to provide an overview of the recent market study of CCI on the Telecom Sector. For the same, the article has first discussed the development in the Telecom Sector in the light of a drastic change in the number of telecom operator in the country and dramatic fluctuation in the telecom charges. Thereafter, emerging competition issues in the telecom sector have been discussed in the light of market study.
Development under Telecom Sector in India
After having a sectoral analysis, it can be said that the telecom sector is one of the fastest-growing sectors in the country. The dramatic alteration in this sector could be analysed in a way that in 1999 there were 15 telecom operators in the country which increased to 21 in 2009. However, just in 10 years, this number fell to 8 due to very tough competition in the market as well as strict and challenging policies of the government like the ongoing Adjusted Gross Revenue (AGR) controversy.
Interestingly, the telecom operators in India are getting huge investments by the global tech giants. Recently, 9.9% stake of Reliance Jio was acquired by Mark Zuckerberg through Facebook. Likewise, Google also acquired a 7.7% stake in the company. Although, Foreign Direct Investment do not per se triggers competition issues, a long-term effect of these investments could be seen as it could easily drive a multiple-player market into a monopolistic market.
However, apart from the statical data, the actual competition in the Indian telecom sector is between three major operators i.e., Reliance Jio, Airtel and Vodafone-Idea which covers a total of 88.4% of the total market. Although, the stiff competition in the market is making it tough for the players to retain their position, the same has been proved a boon for the consumers. This could be understood in a way that after Jio had entered into the market in 2017 various telecom charges like the mobile termination charges experienced a downward revision from 14p per min to 6p per min. Also, the data prices in the country decreased drastically from Rs. 180 per GB in 2016 to Rs. 6.98 per GB in 2019. These figures become even more significant when the same is compared to the data charges of other countries like, in the USA the average cost of per GB data is Rs. 903 and in China, it is around Rs. 3025. This comparative analysis is enough to show how price sensitive the Indian telecom market is.
As per the report of Indian Council for Research on International Economic Relations, on which the market study of CCI is based, observed that along with the development of technology in the telecom sector, the consumer preference also altered drastically as the voice call dominating telecom market has been transformed into data-rich content packs. Furthermore, an evolution of bundling of services can be observed in this sector as initially only "Duo Play" was in existence where voice and messaging services were provided by the operators. However, after the commencement of 2G and 3G network coverages, "Triple Play" came into existence, where the data services were also bundled. Currently, one can see "Quad Play" in the market where OTT services are provided to ensure a holistic experience to the consumers.
Currently, the Indian telecom sector is moving towards bringing 5G technology in India. However, consumers are still struggling with some basic issues like poor network coverage. Thus, more along with bringing innovation in the market, improvement of existing infrastructure should also be stressed upon.
Emerging Competition issues
Under competition law, one of the initial aspects which come under consideration is the determination of the relevant market. In the case of CCI v. Coordination Committee of Artistes & Technicians of W.B. Film & Televisions, it was observed that the purpose of defining "Relevant Market" is to assess, with identifying systematically, the competitive constraints that undertaking face when operating in the market. However, considering the complex structure of the telecom sector and evolving dynamism, it becomes very hard to define the relevant market in this sector.
As already discussed, "Quad Play" is one of the emerging bundling services which collaborates the OTT platforms with the mainstream telecom services. This shows the shift in consumer behaviour. Along with low price factor, data speeds and bundling offers are creating new competition rivalry between the telecom operators. In upcoming days, it could be seen that an operator who will provide the best price to the consumer along with other services, will emerge as a dominant player in the telecom sector. Furthermore, the integration of OTT platforms with telecom operator could trigger vertical competition issue. However, there is no evident proof of the same. Instead, the telecom stakeholders are claiming it to be beneficial for both the operators as well as consumers.
However, telecom experts suggested that unbundling of services and infrastructure will bring in healthy competition in the telecom sector. In their view, segregation of services in different layers will reduce the outsourcing cost and will allow more players to enter the market. This will also help to reduce the situation of abuse of dominant position by any single operator.
Apart from this, spectrum acquisition is also one of the important factors determining competition in the telecom sector. The average spectrum holding for an Indian operator is 31 MHz which is very low as compared to the global average that counts around 50MHz. Thus, it can be said that in the upcoming days where 5G technology is awaiting to begin in India, the operator who will have a strong spectrum acquisition will have a larger consumer base and dominant position in the market.
Merger and Acquisition under the telecom sector are not something new. Previously, the industry has seen some of the infamous mergers like the Vodafone-Hutch merger in 2007, Reliance- Infotel merger, Reliance- Aircel merger, and many more. Recently, a merger was effectuated between two of the top-notch telecom entities, i.e., Vodafone and Idea. One of the probable reasons behind this merger could be the surging interest of the consumers towards the Jio. However, considering the current situation, where only three major entities are left in the market, any further merger may result into duopoly or monopoly in the market which can be proved a deterrent for the telecom sector.
Lastly, it is important to discuss the non-price competition aspect in the telecom sector i.e., data privacy of the consumers. A dominant player in the market has a large consumer base that can easily take the advantage of by cross-linking the sensitive information of the consumers to the other services to create a profitable spear for them. One of the probable solutions for the same is strict data protection laws in India, which the country is still waiting.
There is no shadow of a doubt that the market studies conducted by CCI are providing an in-depth analysis of some unexplored aspects in various sectors. Telecom industry has become one of the integral aspects of our life and this pandemic has increased its worth even more. However, to ensure that these important limbs of our virtual are not abusing their position in the market, CCI is acting as a watchdog. Under Section 21 and 21 A of the Competition Act, 2002, an inter-regulatory consultation mechanism has been provided which ensures that CCI is maintaining adequate communication ties with these sectors to ensure fairness and consumer welfare.
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.