Gujarat National Law University

Gandhinagar, Gujarat (India)

Competition Law (LL.M.)
Submission of Final Draft
Topic: Analysis of Reliance Jio Predatory Pricing case before CCI

Submitted to: Submitted by:

Dr. Udayakumara Ramakrishna B.N. Yash Pandey
Assistant Professor of Law LLM Batch
18LM31

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ACKNOWLEDGEMENT

This project is the result of cooperation and guidance of many people. With all respect the
first person I would like to thank is Dr. Udayakumara Ramakrishna B.N. with whose
guidance this project could be completed.

I would also thank my friends who helped me in collecting material for the project.

Thanking you,

Yash Pandey

Contents
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Title: Analysis of Reliance Jio Predatory Pricing case before CCI...........................................4

Background to the case..............................................................................................................4

Brief Facts of the case................................................................................................................5

Issues Involved...........................................................................................................................5

CCI’s Analysis of allegations and facts.....................................................................................6

Analysis of the CCI’s decision...................................................................................................7

Title: Analysis of Reliance Jio Predatory Pricing case before CCI1

1
CCI case no.3 of 2017

3
Background to the case
The intent of bringing Competition Act 2002 was to curb the market practices that may have
an adverse appreciable effect on the competition in India. One of the ways in which
competition in market is adversely affected is predatory pricing. OECD report on Predatory
Pricing2 explains why predatory pricing has become an issue in the recent past. It explains
that the first reason is privatisation of state owned enterprises 3. This movement resulted in
freed firms who would try to maintain their dominant position in the market and would
prevent entry of new players. The second reason is the increase in imports that may result in
dumping by foreign competitors4. OECD defines predatory pricing as “a deliberate strategy,
usually by a dominant firm, of driving competitors out of the market by setting very low
prices or selling below the firm’s incremental costs of producing the output (often equated for
practical purposes with average variable costs). Once the predator has successfully driven out
existing competitors and deterred entry of new firms, it can raise prices and earn higher
profits”5.

Section 4 of the Competition Act of India talks about abuse of dominant position by an
enterprise, under the explanation b of Section 4 meaning of predatory price is given.
According to this explanation, “predatory price” means 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”6. Therefore to prove predatory pricing in India three elements are
required a) the alleged activity should be done by a firm in dominant position b) the sale
should be at a price which is below cost c) there should be an intent to reduce competition or
eliminate competitors.

Brief Facts of the case

The informant in this case was Bharti Airtel Limited. The allegations were raised against
Reliance Industries Limited (Opposite Party No. 1 or OP 1) and Reliance Infocomm Limited
(Opposite Party No. 2 or OP 2). The allegations raised by informant were in relation to

2
‘Predatory Pricing’ (OECD, 1989)
<http://www.oecd.org/competition/abuse/2375661.pdf> accessed on 29 March 2019
3
ibid
4
ibid
5
Predatory Pricing (OECD Glossary of Statistical Terms, 17 March 2002)
<https://stats.oecd.org/glossary/detail.asp?ID=3280> accessed on 29 March 2019
6
Competition Act 2002, s 4 explanation b
<https://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf> accessed on 29 March 2019

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section 3 and 4 of Competition Act. According to the information, “OP-1 is stated to be one
of the biggest private companies in India in terms of its size, revenue, assets and value,
leading it to be one of the financially strongest companies in the country. OP-1 is engaged in
several businesses such as exploration and production of oil and gas; petroleum refining and
marketing; manufacture and sale of petrochemicals comprising polymers, polymer and fibre
intermediates, textiles, retail; etc. It has been claimed that OP-1 has the largest market share
in polyester fibre and yarn industry and petroleum products industry not only in India but also
globally. OP-1 is also stated to be India’s first private sector company to feature in the
Fortune Global 500 list of ‘World’s Largest Corporations’” 7. The information further
provides that IBSL (Infotel Broadband Services Private Limited) won 2300 Mhz spectrum
auction in 2010, subsequently it was acquired by Reliance Industries Limited. Later IBSL
was renamed as Reliance Jio Infocomm Limited. Currently, Reliance Industries hold 99.4%
stake in Reliance Jio Infocomm Limited. Reliance Jio was initially had Internet Service
Provider License (ISP). Later, they migrated to Unified License. The informant also stated
that Reliance Industries Limited has invested approximately Rs. 1, 60,000 crore in Reliance
Jio Infocomm Limited.

Issues Involved
1). The informant alleges that the free services as offered by Reliance Jio Infocomm Limited
amounts to predatory pricing and they are in contravention of section 4 (2) (a) (ii) and section
4(2) (e) as it was alleged that Reliance Industries has used its financial strength in other
markets to enter into this market through Reliance Jio Infocomm Limited.
The informant here stated before CCI that the relevant market is for “providing 4G LTE
services of telecommunication in India”8. It was stated that Reliance Jio Infocomm Limited
has entered into network and sharing agreements with Reliance Communications Limited
(RCOM). It was further stated, “as per media reports, RCOM itself has announced that it has
virtually merged with OP-2. OP-2 has an overall spectrum holding of 1107.8 MHz across all
4G-LTE bands and in all the bands, OP-2 is holding the largest spectrum i.e. 50 per cent in
2300MHz band, 56 per cent in 800MHz band (shared with RCOM) and 28 per cent in
1800MHz band. OP-2 is offering seamless 4G services using LTE technology in 800MHz,
1800MHz and 2300MHz bands through an integrated ecosystem”. The informant also

7
CCI case no.3 of 2017 at p 3
8
Ibid at p 4

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emphasized that Reliance Jio Infocomm Limited has rolled out free offers under one name or
the other like ‘Jio Welcome Offer’, ‘Happy New Year Offer’ and ‘Jio iphone offer’. The
informant also brought to the notice of CCI that Reliance Jio is providing free services to its
customers both within its network and outside its network as well. As per Interconnection
Usage Charges regulation of 2003 the concept of ‘calling party pays’ is followed in India
where the calling network party has to pay interconnection charges of 14 paisa. Therefore by
providing free services Reliance Jio Infocomm Limited is operating at below average variable
cost with the intention of eliminating other competitors from the market.
2). It was also alleged by Informant that there is an agreement between Reliance Industries
Limited and Reliance Jio Infocomm Limited whereby the former has allowed the latter to
have access to its infinite funds and resources because of which Reliance Jio Infocomm
Limited can continue to provide services at predatory prices to eliminate competition till its
monopoly is created in the market. Therefore, it amounts to mischief which is prohibited
under section 3(1) of Competition Act.

CCI’s Analysis of allegations and facts

1). In regard to the first issue CCI first of all pointed out that the relevant market is for
“provision of wireless telecommunication services to end users in each of the 22 circles in
India”9. The commission here observed that there is no difference between the telecom
services provided in respect of 2G, 3G and 4G technologies.
The commission also pointed out that “the ongoing technology evolution is backward
compatible i.e. between a new generation handset and an old generation network” 10. The 4G
handsets can still use 3G technology, although with advent 4G technology in market people
will have to buy new 4G handsets to avail 4G services. The commission here took into
account the short life span of mobile phones and pointed out that constant migration of
consumers to upgraded ecosystem is natural and inevitable. Moreover, the commission
emphasized that even the Unified Access License granted by Department of
Telecommunications (DoT) does not distinguish between 2G, 3G and 4G technology based
services. Therefore the relevant product market in this case should be for “provision of
wireless telecommunication services to end users” 11

9
Ibid at p 13
10
Ibid at p 12
11
Ibid at p 12

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As far as the relevant geographic market is concerned the commission was of the opinion
that a person using telecommunication services is likely to call another person in his
locality. Therefore, India is divided into 22 telecommunication circles. Separate auction of
spectrum is conducted for each circle. The tariff in each circle is determined by the
telecommunication service providers. As a result the commission held that the relevant
geographic market is “each of the 22 telecommunication circles in India” 12.
As per the commissions understanding of relevant market in this case the Reliance Jio
Infocomm Limited was found to have 6.4 percent of market share and therefore it cannot
be held in a position that it can operate independently of the other market forces to affect
its customers or to affect competition. The commission further pointed out that with mere
7 percent customer base in the market Reliance Jio Infocomm Limited cannot be held to be
in a dominant position in the relevant market. The commissions also took into notice of the
fact that Relinace Jio Infocomm Limited is a new entrant in the market and short term
strategy of proving free offers is only a means of establishing its name in presence of
already established players in the market and therefore such offers do not amount to
predatory pricing. The commission also pointed out that informant has failed to prove as to
how the actions of OP 1 and OP 2 have resulted in predation of competitors. The
informant has also failed to prove that the actions of OP 1 and OP 2 were accompanied
with anti completive intent.
2). In regard to the second issue the commission held, “Mere investments cannot be
regarded as leverage of dominant position, particularly when OP 1 itself is not engaged in
business of providing telecom services or any activities incidental thereto. If one were to
construe such investment as anti-competitive, the same would deter entry and/or expansion
and limit the growth of markets. In view of the above, no prima facie case of contravention of
Section 3(1) or Section 4(2)(e) of the Act is made out against the Opposite Parties.

Analysis of the CCI’s decision

The relevant product market as identified by the commission appear to be incorrect to the
author as the 4G technology is only enabled in the 4G handsets plus there is clear difference
in the kind of services that can be provided through 2G and 4G technology like video calling
was not possible in case of 2G technology based services. There can a similar product in the
market however it does not necessarily mean that these products are interchangeable and
substitutable. The author would like to draw an analogy here with an example of printers with
12
Ibid at p 13

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scanners and photocopy machines. The purpose of both the products is to print documents.
These machines are very similar to each other as well. A user can print his document using
any one of them. Still there is a separate market for both the products because of various
considerations like the cost of printing, the ability of photocopy machine to print large
number of documents in less time, etc. Similarly in case of 4G technology based services the
connectivity is better, the data speed is better, quality of call is better, etc. Therefore, there is
a separate market for 4G based services and hence people choose to buy 4G enabled handsets
and not those handsets that are not compatible with 4G based technology services.
The commission in regard to free services offered by Jio held that these services were only
short term strategy used by Jio to establish its market. This understanding of commission
appears to be faulty to the author as Reliance Infocomm was operating below average
variable cost by providing free services and it was clearly anti-completive approach adopted
by Jio to eliminate competition in the market. As far as the intent of elimination of
competition is concerned the predatory pricing itself depicts that intent. Huge investment was
made in a very short span of time to eliminate competition.
The commission also held that there was mere investment by Reliance Industries Limited and
it did not amount to abuse of dominant position in the market especially when Reliance
Industries Limited itself is not engaging in the market of providing telecommunication
services. The understanding of CCI in this regard as well appears to be flawed as Reliance
Industries Limited held 99.4 percent of the stake in Reliance Jio Infocomm Limited and
therefore it practically had the management and control over Reliance Jio Infocomm Limited.
Therefore, it was using its strength in financial market to act predatory in telecommunication
market through Reliance Jio Infocomm Limited.
In the opinion of author in this case there is predatory pricing per se however whether there
was an appreciable adverse effect on completion in the relevant market was an issue that the
commission should have looked into. Because it appears that the free offers given by
Reliance Jio Infocomm Limited has improved the competition in the telecommunication
market. The case as of now is pending before the Supreme Court of India and only after the
ascertainment of decision by Supreme Court we can know whether the conduct of Reliance
Industries Limited and Reliance Jio Infocomm Limted amounted to predatory pricing or not.