Tie-in Arrangements

• Section 3 (4)
 Meaning
Section 3 (4) (a)- “tie-in arrangements” includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods.

The product or service that is required by the buyer is called the tying product or service and the
product that is forced on the buyer is called the tied product or service.
Tying in includes many efficiencies such as reduced production, distribution and transaction costs as it
 may gives rise to economies of scale and scope in production and distribution. Another efficiency
being product improvement as the tied products may provide for a better product as they would work
more efficiently together and provide more benefits to the customer. For example a streaming device
and a television set. Price efficiency is also increased especially if the goods are complementary
products as the problem of double marginalization is covered through such tying.
The basic objection that would arise from the point of view of the buyer is that he is
required by compulsion to buy a product or service that he does not need and so is
forced to incur unnecessary cost. Also, from the point of view of the law protecting
competition in the market, this would be objectionable on the ground that it reduces
competition in the supply of the tied product.

In Northern Pacific Railway Co. V. United States, the Court observed that, “They
(tying arrangements) deny competitors free access to the market for the tied product,
not because the party imposing the tying requirements has a better product or a lower
price but because of his power or leverage in another market. At the same time, buyers
are forced to forgo their free choice between competing products”. For these reasons,
tying arrangements fare harshly under the laws forbidding restraints of trade.
Tying can be classified into two types. They are:-

1. Static Tying – Static tying can be thought of as an exclusive arrangement. In a static

tied-sale, the buyer who wants to buy product ‘A’ must also purchase product ‘B’.
It is possible to buy product ‘B’ without product ‘A’ which explains why it is a tie.
Thus, the items for sale are product ‘B’ alone or an ‘A-B’ package.
For example: the video game Halo is exclusive to the Xbox format. A buyer who
wants to buy halo must also purchase the Xbox hardware. The tie could arise from
the manufacturer’s power in the market of the Xbox hardware.
2. Dynamic tying – in case of this type of tying, in order to purchase product ‘A’ the
customer is also required to purchase product ‘B’. In dynamic tying the quantity of
product ‘B’ vary from customer to customer. Thus, the item for sale are a package of
‘A-B’, ‘A-2B’, ‘A-3B’ etc.
For example: A seller of a photocopy machine (product A) may require the purchaser
of the machine to use a specific brand of paper i.e. (product B). The paper sales occur
over time and vary across users, based on their demand for the copies. A customer
would not need to determine how much paper to buy at the time the machine was
bought. But under the tying contract, whatever paper was required would have to be
bought from the machine seller.
FORMS OF TYING
Tying can take the following forms:

1. Contractual Tying – the tie may be the consequence of a specific contractual

stipulation. For example in the case of Eurofix-Bauco v. Hilti3, hilti required users of
its nail guns and nail cartridges to purchase nails exclusively from it.
The commission held that this requirement of Hilti exploited customers and harmed
competition and was an abuse of dominant position. A fine of 6 million was imposed
for this and other infringements.

2. Refusal to supply – the effect of tie may be achieved where a dominant undertaking
refuses to supply the tying product unless the customer purchased the tied product.
2. Withdrawal of a guarantee – a dominant supplier may achieve the effect of a tie by
withdrawing or withholding the benefits of a guarantee unless the customer uses
the supplier’s components as opposed to those of a third party.

3. Technical tying – this occurs where the tied product is physically integrated in to
the tying product, so that it is impossible to take one product without the other.
This is what happened in the Microsoft case.
General Essentials
• Two Separate Products
There must be two items that the vender can integrate. For instance a dealer of shoes offers a couple
of shoes together. The vender could offer each shoe independently and require the purchaser of a
left shoe to buy a correct shoe with a specific end goal to get the left shoe. Do the left and right
shoes constitute two particular, isolate items? And therefore do the actions of the seller who is
selling two shoes together amount to a tie-in arrangement? This where the difficulty arises, in
finding the difference in products itself, and the importance of having two separate distinct products
is clear.
The European Commission has held that the two products are distinct so long as consumers would
purchase the tied product separately from the tying product (e.g., Case COMP/C-3/37.792
Microsoft).  The concern with the EU’s approach is that the two products are considered separate
so long as there is a separate demand for the tied product.  For example, shoes and shoelaces
could be considered separate products as long as there is a separate demand for shoelaces.  The
question should actually turn on whether there is a separate demand for shoes without shoelaces. 
There is in fact no separate market for shoes without shoelaces, so they ought not be considered
separate products.
Court of the US in the 1984 case Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S.- In
assessing the separate products criterion, the court held that whether there are one or two products
turns on the character of demand for the two items, rather than on the functional relationship
between them.  Thus, the most important factor in determining whether two distinct
products are being tied together is whether customers want to purchase the products
separately.  If customers are not interested in purchasing the products separately, there is little
risk the tie could foreclose any separate sales of the products.
 Coercion or Conditioning
The second very crucial element to proving that a tie-in arrangement exists, is coercion.
Until and unless a person is forced into buying product B, even though he only wanted
product A, a tie in arrangement cannot exist. Thus, a bike seller offering a helmet lock or
the gas pipeline service provider, offering to sell a gas stove cannot amount to tie-in
arrangements. The position of law in the case of discounts offered is not absolute. If say
the gas pipeline service provider were to club the gas stove in the deal, and a
cumulatively cheaper rate, that does not necessarily make it illegal by itself, but in the
same will have to be done through a subjective analysis.
 Tying v Bundling
The term “tying” refers to a practice whereby the seller of a product or service (”Tying Product”)
requires some or all purchasers of it to also purchase a separate product (“Tied Product”).
“Bundling” is somewhat different from tying. Here, the two products are sold by the seller as a
package at one price.
In a tying arrangement, the tied product is available independently of the tying product. The tying
product, on the other hand, is not available independently i.e. the tied product has to be purchased
along with it. Since the two products are sold as a package in a bundling arrangement, they are not
available independently i.e. the customer is compelled to buy the entire package as a whole.
Interestingly, bundling and tying are dealt with as different practices in India, unlike some other
foreign jurisdictions, viz. the European Union (EU), the United States (US) and the United
Kingdom (UK) which treat the two practices similarly. This divergence in approach can be
attributed to the presence of slight distinctions in terms of the nature and manner of practice
between bundling and tying, despite the two arrangements being essentially the same.
Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) prohibits
horizontal and vertical agreements that adversely affect competition in the European
Market. Further, Article 102 of the TFEU prevents dominant undertakings from abusing
their position and thereby affecting the competition in the market.
Articles 101(1)(e) and 102(d) of the TFEU deals with tying and bundling arrangements. It
is pertinent to note that these two clauses are worded in the same manner and prohibit:
“making the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature, or according to commercial
usage,         have no connection with the subject of such contracts.”
Thus, Article 101 is attracted where a non-dominant entity indulges in tying or bundling
by way of a vertical agreement. Article 102, instead, comes into the picture only where an
entity dominant in the relevant market, i.e. market for the dominant product, abuses its
position to force tying and bundling arrangements upon the buyers.
Indian Law
Section 3 and 4 of the Competition Act, 2002 (the “Act”) correspond to Articles 101 and
102 of TFEU and prohibit anti-competitive agreements and abuse of dominance
respectively. 
Section 3(4)(a) of the Act deals with tie-in arrangements and defines it as follows:
“tie-in arrangement” includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods”
The language of the above provision makes it amply clear that its scope is limited to
include only cases of tying and that the practice of bundling has been specifically
excluded from its ambit. Furthermore, there is no other clause in section 3 which deals
with the practice of bundling.
Section 4(2)(d), on the other hand, deals with bundling arrangements and is worded as follows:
“making the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature or according to commercial usage have no
connection with the subject of such contracts.”
However, a distinction in terms of the nature of the two practices and the applicability of
sections 3(4)(d) and 4(2)(d) has been drawn under Indian Law. In the case of Sonam Sharma v.
Apple, the Competition Commission of India (“CCI”) while analyzing the scope of these
sections held:
There is a subtle difference between the two concepts of tying and bundling. The term “tying”
is most often used when the proportion in which the customer purchases the two products is not
fixed or specified at the time of purchase, as in a “requirements tie-in” sale. A bundled sale
typically refers to a sale in which the products are sold only in fixed proportions. Bundling may
also be referred to as a “package tie-in.”
TYING IN in the United States

Tying under U.S. law has been defined as “an agreement by a party to sell one product but only on the condition that
the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any
other supplier”.

The assessment of tying arrangements under U.S. Antitrust law has undergone significant changes over the time. There
are three periods describing the change.
First, the early period of the per se approach: early cases reflect a strong hostility towards tying arrangements that
were regarded as having hardly any purpose beyond the suppression of competition.

Second, the modified per se illegality approach: Jefferson Parish moved to an approach in which the criteria for tying
took into account efficiencies and competitive harm.
Third, the rule of-reason approach: Microsoft III introduced a rule-of-reason approach towards tying; recognizing that,
at least in certain circumstances, even the modified per se approach would lead to an overly restrictive policy towards
tying arrangements.
In the early cases the per se approach played an important role. In United States Steel v.
Fortner, the court held that tying arrangements “generally serve no legitimate business
purpose that cannot be achieved in some less restrictive way.”
In Northern Pacific Railway v. United States, the railroad was the owner of
millions of acres of land in several Northwestern States and territories. In its sales
and lease agreements regarding this land, Northern Pacific had inserted
"preferential routing" clauses. These clauses obliged purchasers or lessees to use
Northern Pacific for the transportation of goods produced or manufactured on
the land, provided that Northern Pacific rates were equal to those of competing
carriers.
The Supreme Court took the view that Northern Pacific had significant market
power. Not only was its land "strategically located in checkerboard fashion amid
private holdings and within economic distance of transportation facilities" but
"[t]he very existence of this host of tying arrangements is itself compelling
evidence of [Northern Pacific's] great power, at least where, as here, no other
explanation has been offered for the existence of these restraints.” It concluded
that the preferential routing clauses amounted to illegal tying.
The Supreme Court took the view that Northern Pacific had significant market power.
The court declared that the Per-Se rule applies “whenever a party has sufficient
economic power with respect to the tying product to appreciably restrain free
competition in the market for the tied product and a ‘not insubstantial‘ amount of
interstate commerce is affected. In this case, the facts “established beyond any genuine
question that the defendant possessed substantial economic power by virtue of its
extensive land holdings”

In the International Salt Co., Inc. v. United States, case it was held by the court that
“sufficient economic power” could be established in a number of ways, not all of
which were related to the concept of “market power”. Sellers forcing customers to
accept unpatented products in order to be able to use a patent monopoly, and the patent
rights were deemed to give the seller “sufficient economic market power”
In the second period of modified per se rule, the hostile approach towards tying was
revised. In the Jefferson Parish Hospital Dist No. 2 v. Hyde, the Supreme Court
accepted that tying could have some merit and tried to devise a test that distinguished
“good tying” from “bad tying”.

In 1977 Edwin Hyde, an anesthesiologist, applied for admission to the medical staff of
East Jefferson Hospital. The hospital denied the application as it had entered into an
agreement with Roux & Associates (Roux), a professional medical corporation, to
provide all of the hospital's anesthesiological services. Dr. Hyde then sued East
Jefferson Hospital, among others, under section 1 of the Sherman Act, seeking an
injunction to compel his admission to the medical staff. The decisions by the various
courts that considered this arrangement turned on whether the hospital had market
power.
The US Supreme Court observed that the essential characteristic of an invalid tie-in
arrangement lies in the seller’s exploitation of its control over the tying product to
force the buyer into the purchase of a tied product that the buyer either did not
want at all, or might have preferred to purchase elsewhere on different terms.
Under the modified per se rule, it is per se unlawful whenever the seller has sufficient
economic power with respect to the tying product to restrain appreciably free
competition in the market for the tied-in product. Courts have declined to find two
products tied together when the challenged arrangement seems reasonable, either
because it served legitimate functions or because threats to competition seemed
fanciful.
Contrary to the early cases, the Supreme Court in Jefferson Parish recognized that tying
may, at least in certain circumstances, be welfare enhancing:
[N]ot every refusal to sell two products separately can be said to restrain competition. If
each of the products may be purchased separately in a competitive market, one seller's
decision to sell the two in a single package imposes no unreasonable restraint on either
market, particularly if competing suppliers are free to sell either the entire package or
its several parts. . . . Buyers often find package sales attractive; a seller's decision to offer
such packages can merely be an attempt to compete effectively--a conduct that is
entirely consistent.
At the same time, the majority opinion of the Supreme Court in Jefferson Parish felt
compelled to continue to work on the basis of a per se prohibition of tying
arrangements:
It is far too late in the history of our antitrust jurisprudence to question the proposition
that tying arrangements pose an unacceptable risk of stifling competition and therefore
are unreasonable "per se."
The Supreme Court rejected an approach that relied on the functional
relationship to determine whether one or two products were involved.
Instead, the Court focused on the character of demand for the two
products:
“In this case, no tying arrangement can exist unless there is a sufficient
demand for the purchase of anesthesiological services separate from
hospital services to identify a distinct product market in which it is
efficient to offer anesthesiological services separately from hospital
services.”
It found that patients frequently request separate anesthesiological
services and concluded, "the hospital's requirement that its patients obtain
necessary anesthesiological services from Roux combined the purchase of two
distinguishable services in a single transaction.”
Although Jefferson Parish still represents the general position in the U.S. with respect
to tying, the Court of Appeals’ judgment in Microsoft III indicates a preference, in
some circumstances at least, for a rule of reason approach, noting the Supreme Court’s
warning in Broadcast Music v. CBS that “it is only after considerable experience with
certain business relationships that courts classify them as per se violations.”

In Microsoft III, the Court of Appeals concluded that a per se rule was
inappropriate, due to the fact that the circumstances in Microsoft III differed from
previous cases, and that the “separate products” approach used in Jefferson Parish was
not a suitable approach given that it was backward looking. The case was therefore
referred back to the District Court with a direction to conduct a rule of reason analysis
which balanced the anticompetitive effects and efficiencies.
U.S. government accused Microsoft of illegally maintaining its monopoly position in
the PC market primarily through the legal and technical restrictions it put on the
abilities of PC manufacturers (OEMs) and users to uninstall Internet Explorer and use
other programs such as Netscape and Java. At trial, the district court ruled that
Microsoft's actions constituted unlawful monopolization under Section 2 of the
Sherman Antitrust Act of 1890, and the U.S. Court of Appeals for the D.C. Circuit
affirmed most of the district court's judgment.
The plaintiffs alleged that Microsoft had abused monopoly power on Intel-based
personal computers in its handling of operating system and web browser integration. The
issue central to the case was whether Microsoft was allowed to bundle its flagship
Internet Explorer (IE) web browser software with its Windows operating system.
Bundling them is alleged to have been responsible for Microsoft's victory in the browser
wars as every Windows user had a copy of IE. It was further alleged that this restricted
the market for competing web browsers (such as Netscape Navigator or Opera),
since it typically took a while to download or purchase such software at a store.
Underlying these disputes were questions over whether Microsoft had manipulated its
application programming interfaces to favor IE over third-party web browsers,
Microsoft's conduct in forming restrictive licensing agreements with original equipment
manufacturers (OEMs), and Microsoft's intent in its course of conduct.
Microsoft stated that the merging of Windows and IE was the result of
innovation and competition, that the two were now the same product and
inextricably linked, and that consumers were receiving the benefits of IE free.
Opponents countered that IE was still a separate product which did not need to
be tied to Windows, since a separate version of IE was available for Mac OS.
They also asserted that IE was not really free because its development and
marketing costs may have inflated the price of Windows.
The court of appeals concluded:
“In fact, there is merit to Microsoft's broader argument that Jefferson Parish's
consumer demand test would "chill innovation to the detriment of consumers by
preventing firms from integrating into their products new
functionality previously provided by standalone products--and hence,
by definition, subject to separate consumer demand."
The D.C. Circuit remanded the government's tying claim to the district court to be
considered under the rule of reason. The government decided to drop the claim.
EUROPEAN LAW ON TYING

Article 81(1) of the EC Treaty includes as agreements that which are incompatible with the
common market and the agreements that make the conclusion of contracts subject to acceptance by
the other parties of supplementary obligations which, by their nature or according to commercial
usage, have no connection with the subject of such contracts. Article 82 includes tying as an abuse
of dominant position, thus Article 81 is attracted when tying is part of an agreement concluded by a
non-dominant supplier and a buyer. However, Regulation 2790/1999 on Vertical restraints provides
for a safe harbour system whereby vertical agreements involving tying will be presumed compatible
with article 81 if the market share of the supplier is below 30% in the relevant market.

Tying agreements are not illegal per se. An illegal tying agreement takes place when a seller
requires a buyer to purchase another, less desired or cheaper product, in addition to the desired
product, so that the competition in the tied product would be lessened.
The European Commission and European Courts have adopted a “unified” approach to
the different forms of tying and bundling. In other words, contractual tying( including
the tying of primary products and consumables) and integration of products have been
assessed in the same way without taking into account the different underlying effects of
them on competition.
The formal framework of the tying analysis is almost a carbon copy of the U.S. per se
approach, following a four-stage assessment:
1) To establish market power (dominance) of the seller in relation to the tying product;
2) To identify tying which means to demonstrate that (a) customers are forced (b) to
purchase two separate products (the tying and the tied product);
3) To assess the effects of tying on competition;
4) To consider whether any exceptional justification for tying exists.
Market power
Dominance in the market for the tying product has been a prerequisite for finding of
abusive tying. Thus, the first requirement in the case of an alleged tying abuse is to
establish that the firm has a dominant position in the market for the tying product.
The Napier Brown v. British Sugar9 case arose from a complaint by Napier Brown, a sugar
merchant in the United Kingdom, which alleged that British Sugar, the largest producer and
seller of sugar in the UK, was abusing its dominant position in an attempt to drive Napier
Brown out of the UK sugar retail market. In the subsequent proceedings, the Commission
objected, among other things, to British Sugar’s practice of offering sugar only at delivered
prices so that the supply of sugar was, in effect, tied to the services of delivering the sugar.
Having concluded that British Sugar was dominant in the market for “white granulated
sugar for both retail and industrial sale in Great Britain,” the Commission took the view that
“reserving for itself the separate activity of delivering the sugar which could, under normal
circumstances be undertaken by an individual contractor acting alone” amounted to an abuse.
According to the Commission, the tying deprived customers of the choice between
purchasing sugar on an ex factory and delivered price basis “eliminating all competition in
relation to the delivery of the products.”

.
The Tetra Pak II case also concerned the tying of consumables to the sale of the
primary product. Tetra Pak, the major supplier of carton packaging machines and
materials required purchasers of its machines to agree also to purchase their carton
requirements from Tetra Pak. The Commission, upheld by the Court, condemned the
tying as abuse of a dominant position
Identification of Tying
Tying has been defined by the Commission as (a) bundling two (or more) distinct
products, and (b) forcing the customers to buy the product as a bundle without giving
them the choice to buy the products individually.
Coercion
Under E.C. law, as under U.S. law, coercion to purchase two products together is a key
element to establish abusive tying. Coercion may take many forms. Coercion is clearly
given where the dominant firm makes the sale of one good as an absolute condition for
the sale of another good.
A contractual coercion occurs when the requirement to buy product B is a condition for
the sale of product A, i.e. a refusal to supply the tying product separately.
Technical coercion is preventing the user from using the dominant product without the
tied product.
Financial coercion, on the other hand, is a package discount making it meaningless to
buy the tied product separately.
This may be explicit in an agreement (for e.g. Tetra Pack II case) or de facto (for e.g. Hilti
case). However, lesser forms of coercion, such as price incentives or the withdrawal of
benefits may also be sufficient.
Separate products: The second requirement is establishing whether products A and B
are separate products. The main criterion to analyse in establishing whether two
products are separate or integrated is the potential user or consumer demand for the
tied product individually, from a different source than for the tying product.

If B is a separate product, the relevant question is whether there is demand for A as a

stand- alone product. Are there consumers prepared to pay a price to acquire product A
without product B attached? If so, then A and B are separate products, otherwise, there
are two products AB and B, and A is just a component of the first of the two products.
When there is no demand for acquiring the components separately from different
sellers, then no competition-related issues under Art. 82 EC arises. Tying can only
occur when the products are genuinely distinct.
Anti-competitive effects
Factual evidence of foreclosure is not necessary as a constituent element of tying under
Art. 82 EC, but it is enough to show that tying may have a possible foreclosure effect
on the market.
According to the British Sugar case, tying does not need to have any significant effect
on the tied market. British Sugar tied the supply of sugar to the service of delivering
the sugar. The Commission did not regard it as necessary to assess whether the delivery
of sugar was part of a wider transport market and whether the tying foreclosed any
significant part of such market. The fact that British Sugar had “reserved for itself the
separate activity of delivering sugar” was sufficient as an anticompetitive effect.
In Hilti, the Commission went one step further. It took the view that depriving the
consumer of the choice of buying the tied products from separate suppliers was in
itself abusive exploitation: “These policies leave the consumer with no choice over
the source of his nails and as such abusively exploit him.”(Emphasis added.) In other
words, as any tying by definition restricts consumer choice in the way described above,
the Commission’s position in Hilti strongly suggests that foreclosure does not have to
be established and that, hence, tying is subject to a per se prohibition (with the possible
exception of an objective justification).
Justification of cases
The practice of tying and bundling can be justified on a legitimate and proportionate
basis. If the European Commission manages to prove the existence of the first four
requirements, the burden of proof for objective justification for the practice of
tying and bundling shifts to the defendant. Legitimate objectives put forward for
practising tying and bundling must be genuine. A legitimate objective is when tying
and bundling enhances efficiency because it is more costly to produce, or distribute
the tied products separately, or there might be a need to ensure the quality or
safety of the products.
In the guidelines on Abusive Exclusionary Conduct, the Commission noted that tying
and bundling may give rise to an objective justification by producing savings in
production, distribution and transaction costs. In addition, the Article 82 Staff
Discussion Paper noted that “combining two independent products into a new,
single product may be an innovative way to market the product(s),” and that such
“combinations are more likely to be found to fulfil the conditions for an efficiency
defence than is contractual tying or bundling.” The guidance on Abusive Exclusionary
conduct, however, simply notes that the Commission may also examine whether
combining two independent products into a new, single product might enhance the
ability to bring such a product to the market to the benefit of customers.
Indian law

Vertical restraints are subject to the Rule of Reason test. So, the benefits and the harm have to be weighted before an act of tying can
be declared anti-competitive or to have an appreciable adverse effect on competition, in terms of the language of the law.
Under section 19(3) of the competition act, 2002 six factors are provided for consideration of competition by the authority before
coming to any conclusions.

Section 19(3) states that... “The Commission shall, while determining whether an agreement has an appreciable adverse effect on
competition under section 3, have due regard to all or any of the following factors, namely:
a) Creation of barriers to new entrants in the market;
b) Driving existing competitors out of the market;
c) Foreclosure of competition by hindering entry into the market;
d) Accrual of benefits to the consumer
e) Improvements in production or distribution of goods or provision of services
f) Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of
services.”
Three of these factors are indicative of the harm to competition while the remaining three are pro-competitive and enhance welfare.
The scheme of law is clearly for the application of the Rule of Reason Test.
 Sonam Sharma v. Apple Inc. and others, [Case No. 24 of 2011]

OP1 is an American multinational corporation that designs and markets consumer electronics, computer
software and personal computers, best known for hardware products like Macintosh line of computers, iPod,
iPhone and iPad. OP2 is the Indian subsidiary of OP1 through which it markets its products in India. OP3 and
OP4 are leading mobile service providers in India, jointly having more than 30 crore Indian subscribers that
account for almost 52% market share in the GSM market.

It has been submitted by the Informant that iPhone is a line of internet and multimedia enabled smart phone
that functions as video camera, camera phone, portable media player, internet client with email and web-
browsing facilities and is capable of sending texts and receiving voicemail. Further, more than 350,000
approved third-party as well as Apple application software, having diverse functionalities including games,
reference, GPS navigation, social networking, security and advertising for television shows, films and
celebrities, can be downloaded from the ‘App Store’ to the iPhone. The Informant has claimed that during the
fiscal 2010, worldwide sale of iPhone was 73.5 million. The Informant has further averred, on account of its
unique features, iPhones cannot be substituted by any other smartphones available in the market.
The Informant has submitted that OP3 and OP4 have abused their dominant position by
imposing unfair conditions on the purchasers of Apple iPhones by offering expensive
subscription services and compulsorily locking the handsets to their respective networks
and by threatening to void the warranty terms of such iPhones that have been unlocked
and/or jailbroken by the users in order to use the same on the networks of their GSM
competitors or to use unapproved third party applications on their iPhones. Also, OP3 and
OP4 have used their dominant position in the GSM market to enter and control the
iPhone market in India.

The Informant has also suggested violation of Section (3) of the Act by the OPs in as
much as they have entered into anti-competitive agreement to limit and/or control the
market for iPhone in India by creating entry barriers for other GSM players in India, thus
having appreciable adverse effect on competition in the relevant market.
Investigation by the DG
DG has concluded that Apple did not enter into any exclusive agreement with Airtel and
Vodafone for sale and distribution of iPhones in India. By selling locked iPhones to the
network of the distributing MNO, Apple entered into tie-in arrangement with Airtel and
Vodafone in terms Section 3(4)(a) of the Act. However, analysis of various data and facts
gathered during the investigation did not reveal any appreciable adverse effect on
competition in the cellular service market in India, in terms of Section 19(3) of the Act.
Investigation did not reveal any infringement on account of practices regarding use of
only authorized applications on iPhones. Hence, no case for violation of Section 3 of the
Act has been made. Since, Apple has not found to be dominant in the relevant market of
smartphones in India and also neither Airtel nor Vodafone are found to be dominant in the
relevant market of GSM cellular service providers in India, therefore, no case has been
made out against them for infringement of Section 4 of the Act.
Jurisdictional Issues

Two major jurisdictional issues were raised by the opposite parties viz; a) jurisdiction of CCI in this
case as it pertains to the jurisdiction of TRAI; b) the applicability of the Act as the case pertains to
pre-May 2009. Both these issues were addressed by the DG. The Commission takes note of the
juridical issues raised by some of the opposite parties and is in agreement with the view taken by the
DG in this regard, as brought out earlier in this Order and therefore settles the issues raised by them.

Jurisdiction of CCI

Regarding the jurisdiction of CCI contested by Airtel, DG has submitted that notwithstanding the
fact that activities of Cellular Service Providers in India are regulated by a Sectoral Regulator, any
competition issues arising out of the activities and practices of these entities would fall within the
ambit of the provisions of the Competition Act under section 62 of the Act. Accordingly, DG has
submitted that there is no basis for contention of the opposite party regarding jurisdiction of CCI.
Date of agreement prior to the enactment

On the issue of applicability of the Act to events prior to its notification, DG has
referred to the decision of the Hon’ble High Court of Bombay in W.P. No. 1785/ 200,
Kingfisher Airlines Ltd. v. Competition Commission of India decided on 31.03.2010. In
this decision, it was held that though the Act is not retrospective, it would cover all
agreements covered by the Act though entered into prior to the commencement of the
Act but sought to be acted upon now i.e. if the effect of the agreement continues even
after 20.5.2009. DG has submitted that even though in the instant case the alleged anti-
competitive Arrangement / agreement was started before coming into force of sections
3 and 4, the Commission has the jurisdiction to look into such conduct as it continued
even after the enforcement of relevant provisions of the Act.
On violation of section 3 (4)
The allegation is focused on what is referred to as a lock-in arrangement between the
handset manufacturer and service-provider by the Informant. At this stage, it is
worthwhile to distinguish between tie-in and bundling as these two terms tend to be used
interchangeably in common parlance especially in marketing strategies.
A tying arrangement occurs when, through a contractual or technological requirement, a
seller conditions the sale or lease of one product or service on the customer’s agreement to
take a second product or service. In other words, a firm selling products X and Y makes the
purchase of product X conditional to the purchase of product Y. Product Y can be purchased
freely on the market, but product X can only be purchased together with product Y. The
product that a buyer is required to purchase in order to get the product the buyer actually
wants is called the tied product. The product that the buyer wants to purchase is called the
tying product. Examples of tying include the tied sales of machines and complementary
products, the tied sales of machines and maintenance services, as well as technological ties
that force consumers to buy two or more products from the same supplier due to
compatibility reasons. More often, tying is a sales strategy usually adopted by the
companies to promote / introduce a slow-selling or unknown brand when it has in its
portfolio a fast-selling or well known product, over which it has certain market power.
Price bundling is a strategy whereby a seller bundles together many different goods / items for sale and
offers the entire bundle at a single price. There are two forms of price bundling - pure bundling, where the
seller does not offer buyers the option of buying the items separately, and mixed bundling, where the seller
offers the items separately at higher individual prices. From producers perspective, mixed bundling is
usually preferable to pure bundling, both because there are fewer legal regulations forbidding it, and
because the reference price effect makes it appear even more attractive to buyers. Bundling is used as a
strategic pricing tool by the producers to price discriminate among groups of buyers with different
preference schedule in order to capture larger pie of social surplus thus generated.

Having discussed tying and bundling, it is important to underscore the fact that there is a subtle difference
between the two concepts. The term “tying” is most often used when the proportion in which the customer
purchases the two products is not fixed or specified at the time of purchase, as in a “requirements tie-in”
sale. A bundled sale typically refers to a sale in which the products are sold only in fixed proportions (e.g.,
one pair of shoes and one pair of shoe laces or a newspaper, which can be viewed as a bundle of sections,
some of which may not be read at all by the customers). Bundling may also be referred to as a “package
tie-in.” It is also true that various foreign courts have occasionally used the two terms interchangeably.
Tying in requires an element of coercion in getting the consumer to buy product B if he is seeking product A. Generally, the
following conditions are necessary and essential in respect of anti-competitive tying:

1. Presence of two separate products or services capable of being tied:

In order to have a tying arrangement, there must be two products that the seller can tie together. Further, there must be a sale
or an agreement to sell one product or service on the condition that the buyer purchases another product or service (or the
buyer agrees not to purchase the product or service from another supplier). In other words, the requirement is that purchase
of a commodity was conditioned upon the purchase of another commodity.

2. The seller must have sufficient economic power with respect to the tying product to appreciably restrain free competition
in the market for the tied product:

An important and crucial consideration for analyzing tying violation is the requirement of market power. The seller must
have sufficient economic power in the tying market to leverage into the market for the tied product. That is, the seller has to
have such power in the market for the tying product that it can force the buyer to purchase the tied product.

3. The tying arrangement must affect a "not insubstantial" amount of commerce:

Linked with the above requirement, tying arrangements are generally not perceived as being anti-competitive when
substantial portion of market is not affected.
The present case involves a distribution / sales arrangement between Apple and Airtel /
Vodafone is a case of ‘contractual tying’ wherein the handset manufacturer and service provider
have joined hands to offer a packaged product to a customer. Tying arrangements are common
in the wireless telecommunications industry. Worldwide wireless networks compete for
exclusive contracts to offer popular mobile devices. However, the Commission deliberated on
whether such tying arrangements are anti- competitive.
 An agreement between two parties in a vertical chain to be anti- competitive essentially
requires that the intention of such an agreement was foreclosure in both the relevant markets
resulting in considerable consumer harm. But as pointed out that for a vertical agreement to be
anti competitive requires the monopolization claim to hold, and given the minuscule market
share of the tying party the monopolization claim will be contrived. Nevertheless, we assess
this agreement in the framework of 19(3)(a) (b) and (c) by posing the following questions:

• Does this agreement prevent Airtel and Vodafone customers to use other smart phones?

• Does the agreement prevent unlocked iPhone users to use services of other mobile service
provider?

• Consequently, is there a foreclosure effect of the agreement on any of the two markets –
smartphone and mobile services?
In this case, it is found that a consumer interested in buying an iPhone is tied to one of the
two mobile networks i.e. Airtel or Vodafone. It is worth noting that at the time of launch of
iPhone in India, Apple did not have an outlet to sell its iPhone, a high-end smartphone.
Instead of investing money on creating sales and service outlet and incurring advertisement
expenditure, Apple’s strategy was to have tactical agreement with network operators,
possibly the best partners for selling mobile handsets. This arrangement also helped Apple
in gauging the public perception for iPhone before actually selling iPhone through its own
retail stores. The mobile network companies who spent money on creating distribution
channel and incurring advertisement expenditure wanted the iPhone to be locked-in for
some period so that they would be able to recoup their investment over a period of time.
To assess the alleged anti-competitive effect of the tie-in arrangement between Apple and Airtel /
Vodafone in line with Section 19(3), the Commission examined the following:

A. Share of markets: Market share of Apple iPhone in the smartphone segment; subscribers using
Apple iPhone as a percentage of total GSM subscriber.

Relying on the market share statistics of smartphones in India as provided by the DG, the
Commission observes that Apple had a share of less than 6% in the market of smart phones during the
period 2008-11. Furthermore, share of GSM subscribers using Apple iPhone to total GSM subscribers
in India is miniscule (less than 0.1%). Similarly, relying on the data provided by the DG on mobile
service provider, the Commission observes that no operator has more than 35% market share in an
otherwise competitive mobile network service market. As none of the impugned operators (OP3 /
OP4) have market-share exceeding 30%, that smartphone market in India is less than a tenth of the
entire handset market and that Apple iPhone has less than 3% share in the smartphone market in India,
it is highly improbable that there would be an AAEC in the Indian market.
B. Sanctity of exclusivity under multiple arrangements of Apple with other service providers as well as premium resellers,
apart from the cited opposite parties.

In the present case, the Commission notes from the DG’s investigation that Apple iPhone had approached several service
providers to sell its handset without exclusivity as regards the service provider. Apart from service providers, these handsets
were also sold through the Apple Premium Resellers (APRs). The exclusivity argument put forward by the Informant flies in
the evidence of multiple choices for both purchase of iPhone as well as network service provider for consumers.

The Commission also notes 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. It is
difficult to construe consumer harm from the ‘tie-in’ arrangement between the opposite parties. The Commission observes
that there is no restriction on consumers to use the network services of OP3 and OP4 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 .
C. Effect of the tie-in arrangement between a handset manufacturer and a service provider vis-à-
vis consumer choice.

none of the OPs have a position of strength to affect the market outcome in terms of market
foreclosure or deterring entry, creating entry barriers or driving any existing competitor out of the
market and within the theoretical framework of tying arrangement, the anti-competitive concerns
in terms of section 3(4) violations does not hold. On the other hand, Commission has reasons to
believe that the distribution arrangement between the impugned parties helped create a market for
iPhone in India wherein domestic consumers got an opportunity to purchase a contemporary
handset which was otherwise available through the grey market.

The Commission does not find any evidence to show that entry-barriers have been created for new
entrants in the markets i.e. smartphone market and mobile services market by any of the impugned
parties. Similarly, nothing has been brought to the notice of the Commission to reveal that existing
competitors have been driven out from the market or that the market itself has been foreclosed.
Under these circumstances, on the basis of the counter-factual posed, the Commission
opines that there is no anti-competitive effect of the tie-in arrangement as alleged by the
Informant. In fact, there is some suggestion in the literature that the earlier tying
arrangement between the iPhone and the service providers in other jurisdictions may
have spurred wireless service providers to invest in innovation in mobile devices. Such
innovation has resulted in an explosion of new mobile devices and continued growth of
the mobile communications industry. It has not caused the disastrous results on
competition or the formation of double-monopolies that some have feared. Hence, the
belief that the tying arrangement has caused serious harm is misplaced.

In view of the foregoing, there is no case in terms of Section 3(4) violation.

M/S ESYS Information Technologies Pvt. Ltd v. Intel Corporation, [2014 CompLR 1132 (CCI)]

The Informant was appointed as an authorized distributor of Intel‟s products, vide

distributor agreement(s) (hereinafter referred to as „the Agreement‟), starting 2003.
Owing to one year validity of such agreements, Intel used to renew it at the end of each
year with necessary amendments.

It is averred in the information that despite complying with all the terms and conditions
of the Agreement and achieving more than the sales target, Intel terminated the
Agreement with the Informant on 23.07.2010 without giving any cogent reason. As per
the Informant, Intel was not able to provide any specific reason for the termination of
the Agreement in the termination notice because the actual reasons are illegal and anti-
competitive.
As per the Informant, Intel terminated the Agreement for the following reasons:

i. Despite pressure from Intel not to deal with the products of its competitors, the Informant started
dealing with the products of M/s Advance Micro Devices (AMD), a competitor of Intel, from late 2009
and launched its machines with AMD chips with wide publicity in February, 2010.

ii. Intel intended to hurt the business interests of the Informant and to increase the profitability of its
other distributors who were the competitors of the Informant. However, against Intel‟s wishes, the
Informant refused to fix higher resale prices of its products.

It is averred in the information that since the Informant and Intel are operating at different levels or
stages of the same production chain, by compelling the Informant to sell its low demand products along
with the high demand products Intel has contravened the provisions of Section 3(4)(a) of the Act which
prohibits tie-in arrangements. It is also alleged that by denying the distributors not to dealwith the
products of its competitors, Intel has contravened the provisions of Section 3(4)(b) of the Act which
amounts to exclusive supply agreement. Further, it is averred in the information that by dictating the
retail price of its products to the distributors, Intel has contravened the provisions of Section 3(4)(e) of
the Act which prohibits re-sale price maintenance.
Investigation by the DG
The DG analyzed the agreement and noted that the agreement talks of suggested prices but leaves the
final prices to the sole discretion of the distributor. The DG gathered information from other
distributors of Intel and examined the submissions made by the executives of Intel and Esys and
concluded that there is no substance in the allegation.

On the issue of tying focus products with base products being in contravention of section 3(4) of the
Act, then DG observed that Intel sets quarterly revenue targets for distributors. Under these targets,
Intel communicated a product mix ratio under four to five broad categories of microprocessors. The
incentive programme also links the incentives to the sales mix of focus and base products. However,
these targets are not binding on the

distributors. The DG noted that Intel does not pre-condition the purchase of any particular
microprocessor on the purchase of another microprocessor. The product mix ratio was not mandatory
but was desirable for the purpose of availing incentives. On the basis of these facts and other
parameters related to incentives and targets examined above for the purposes of section 4(2)(a)(i)
analysis, the DG found that there is no contravention of section 3(4) of the Act.
Judgment by the CCI

A plain reading of the above provisions of the Act reveals that it prohibits anti-
competitive agreements (enterprises or persons operating at different stages or levels of
the production chain in different markets) that includes tie-in arrangement, exclusive
supply agreement, exclusive distribution agreement, refusal to deal, and resale price
maintenance which causes or is likely to cause an appreciable adverse effect on
competition (AAEC) in India.
Tie-in arrangement, as provided in the Act, includes any agreement requiring a purchaser of goods
as a condition of such purchase, to purchase some other goods. In the instant case, it is observed
by the Commission that there is no evidence on record to hold that Intel is putting any condition
before any distributor that it will provide its high demand products only if the distributor
purchases its low demand products also. Rather, it has come in evidence that Intel provides more
incentives to those distributors who achieve the targets with reference to its low demand products.
This targets and incentive structure of Intel has plausible business justification. It may be a
prudent business decision on the part of a manufacturer to provide more incentives to distributors
for its low demand product with the intention to raise its market demand. Any allegation related to
the aforementioned incentive schemes may raise antitrust concern, only if the same has an
appreciable adverse effect on competition including the impact of causing foreclosure of the
competitors of Intel or distort the competition in the downstream distribution business. In this
case, investigation has pointed out that the incentive schemes are neither causing foreclosure of
competitors of Intel nor placing the Informant at any competitive disadvantage. Thus, in the
absence of any harm to competition the Commission finds no merit in the allegation of the
Informant in this regard.
The next is the issue of exclusive supply agreement. As per the Act, exclusive supply agreement
includes any agreement restricting in any manner the purchaser in the course of his trade form
acquiring or otherwise dealing in any goods other than those of the seller or any other person. In
the DG report, it is found that „the Agreement‟ does not prohibit and rather provides for the
distributors to deal in competing products of Intel subject to intimation. It is noted that OEMs and
other distributors are dealing with the products of the competitors of Intel. No material or
evidence was found by the DG during the course of investigation that Intel prevented the
Informant from dealing with the products of its competing companies. In fact, the rival of Intel,
AMD has also confirmed to the DG that they have not come across any instances of exclusivity
insisted by Intel in India to its distributors. Since, neither the DG investigation nor the material
available on record reveals that the Intel has compelled the Informant or any other distributors to
exclusively deal with its products, the Commission, is of the view that the allegations of the
Informant in this regard do not get established. Hence, no case of contravention of the provisions
of Section 3(4)(b) of the Act is made out against Intel.
On the issue of resale price maintenance, the Act provides that it includes any
agreement to sell goods on condition that the prices to be charged on the resale by the
purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices
lower than those prices may be charged. The Informant has alleged that Intel is
dictating the resale price to the distributors. On the other hand Intel has submitted that
the suggested retail price is only a guideline and that distributors have the sole
discretion to determine its own resale price. The Commission notes that contrary to the
allegation of the Informant, Clause 4(d) of distributor agreement expressly provides that
distributors are free to sell the Intel products at a price suggested by the distributors.
The information obtained by the DG from various parties revealed that the distributors
themselves set the sale price of microprocessors. Therefore, the allegation that Intel is
setting the resale prices for distributors is not found substantiated.
 Consumer Online Foundation v Tata Sky Ltd & Ors. [Case no. 2/2009; CCI]

The instant information has been filed by Consumer Online Foundation (‘the informant’) against Tata Sky
Limited, Dish TV India Limited, Reliance Big TV Limited and Sun Direct TV Pvt. Limited (‘the opposite
parties’) under section 19 (1) (a) of the Competition Act, 2002 (‘the Act’) alleging, inter alia, contravention
of the provisions of sections 3 and 4 of the Act.

The information states that the following are the four main DTH service providers in the market:

i. Dish TV India Limited

ii. Tata Sky Limited

iii. Reliance Big TV Limited iv. Sun Direct TV Pvt. Limited

The above mentioned players (‘DTH service providers’) are allegedly restraining competition in the market
by preventing interoperability between hardware and DTH signals provided by different manufacturers and
DTH service providers. DTH service providers are not providing DTH services to consumers, unless they
also purchase the hardware from them, which includes the Dish Antennae and the Set Top Box (‘STB’).
According to the information primarily there are two stages in DTH technology. First is
the beaming of compressed and scrambled signals by the Broadcast Centre of the DTH
service provider to the Satellite. Second is the transmission of the scrambled signals to
the subscribers.

These scrambled signals can be de-scrambled by the subscriber of the services through
the dish antennae and the STB. It is at this stage that the service providers restrict the
ability to descramble only through specific hardware supplied by the service provider
himself. In other words, other hardware manufacturers are prevented from supplying
their hardware to subscribers as such hardware would not have the ability to unscramble
the signals which can be achieved by using a coded viewing card, provided by the DTH
service provider.
The information claims that ideally, if a consumer has a STB, he should be able to access
the services of different DTH service providers, without being required to buy a new STB.
At the same time, different manufacturers should be able to provide hardware directly to the
subscribers irrespective of the service provider of the content. The situation can and should
not be different from the mobile phone services where a consumer can use any hardware
(mobile phone) to access the signals of any of the mobile service providers as long as the
consumer buys the Subscriber Identity Module (‘SIM’) card of that particular mobile
service provider.
The informant gives instances of acts by the DTH service providers that show how they are
avoiding interoperability:

DTH service providers are restricting competition amongst themselves because once a consumer
buys the hardware to access services of a particular DTH service provider, he cannot avail the
services of any other DTH service provider unless he buys new hardware from the next DTH
service provider. For migrating to any other DTH service provider, he will have to procure a
completely new set of hardware, being offered by that particular DTH service provider whose
services the Customer wants to access. Thus they are limiting competition amongst themselves.

By preventing interoperability the DTH service providers are creating a barrier to entry for the
enterprises which manufacture only STBs. The market for the independent STB manufacturers
is therefore completely blocked only because the DTH service providers do not allow the
interoperability of the STBs and the DTH signals.
DTH service providers are forcing the consumers to get into a tie-in arrangement with
them. They require the purchaser of their DTH Services to also buy/take on rent the
STBs procured by them. They are not giving DTH services to those who are not willing
to buy/take on rent their STBs. Thisis a clear violation of section 3(4) of the Act under
which a tie-in arrangement would prime facie be considered violative of section 3 if it
has an appreciable adverse effect on competition in India. A tie-in arrangement has been
defined as including an “agreement requiring a purchaser of goods, as a condition of
such purchase, to purchase some other goods”.
Report of the Director General
DTH segment initially required huge investment and is in the nascent stage in India. The DTH service operators at
this point of time are not interested in poaching on each other’s client but are more focused in increasing their
individual subscription base so as to achieve their breakeven point. The provision for both the technological and
commercial interoperability was made by the Government of India while issuing license to the DTH service
operators so that the clients have a choice to exit in case they are not satisfied with the services of the DTH services
operators. However, the DTH service operators have not made their respective Conditional Access Modules (CAMs)
available in the market which can be placed in the common slot of the STB as specified by the BIS. To comply with
the BIS specification DTH service operators provided the common slot in STB, however, no interoperable CAMs
were provided which is similar to have a gun without the bullets. This issue has been brought out in the survey
wherein information asymmetry is noticed in the DTH market. The information about the various schemes offered,
access to Free to Air (FTA) channels etc. was not disseminated freely in the market as the same would have resulted
in movement of existing clients from one DTH service provider to another DTH services provider and, in turn,
resulted in vigorous competition in the DTH market. The said 6 DTH service operators control nearly 100% of the
market for DTH services. Therefore, from the investigation, it emerges that the practices followed by different DTH
service operator has resulted in adverse effect on competition.
By not making their respective CAMs available in the market they have restricted technological
interoperability in the DTH market. The non availability of CAMS of the respective DTH service
operators in the market has restricted the options available to the client who wishes to shift from one
DTH service operator to another. Instead of enabling subscribers taking an informed independent
decision in switching over to another DTH service operator, the DTH service operators have
decided not to supply their respective CAMs considering its cost. In addition to this, availability of
the CAMs of various DTH service operators in the market would have resulted into churning of
customers among the DTH service operators which would have resulted into vigorous competition
and forced the DTH operators to improve quality of service so as to retain their existing customer
base.
Contentions of Tata Sky and Ors.
It has been submitted that the Commission must appreciate the main reason for
mandating interoperability at the time was the concern over affordability of the DTH
STB. However, over the last four years, the market forces have ensured affordability
and it is not a concern today as all DTH operators have deployed narrowly targeted
subsidies directly to all their subscribers. It is an established economic principle that
narrowly targeted subsides are the most economically efficient means of ensuring
affordability. The DTH operators have addressed the prime concern of public policy and
hence it has been submitted that interoperability is not material relevance in today’s
market conditions.
It has been further submitted that the investigation has proceeded on the premise that technical
compatibility and effective interoperability are economically and technologically feasible.
However, this presumption is not tested on the touchstone of technical and economic reality as
well as conditions that prevail in the market. It is, thus, submitted that an inquiry under section
3 (4) of the Act will be incomplete if it is conducted bereft of a robust evaluation of the
prevalent technical and economic/market conditions.

the TRAI stating that in reality “the interoperability between set top boxes between two DTH
operators is practically not feasible to the level of completeness”.
The Commission ought to appreciate that enforcing interoperability shall result in an avoidable
technology barrier that will only distort the competitive environment and not work in the
interest of consumers in the long run. Technology changes very frequently rendering the earlier
technology obsolete and thereby making switching difficult. It is stated that even in a nascent
market industry like DTH different formats have come into existence which clearly
demonstrates the problems of switching as the STBs are incompatible for such changes in
technology. It is further submitted that almost all other DTH service operators, who entered the
market subsequent to the answering opposite party herein, are not using the compression
(MPEG2) and transmission (DVBS) specification laid down by the BIS (IS 15377: 2003)
transmission so there is no possibility of its subscribers receiving their signals.
it has been submitted that the Commission ought to ensure that its interference on this issue does
not end up defeating the purpose of the Act. The preamble to the Act states that one of the aims of
the Commission is to promote and sustain competition in markets. In this regard it has been
submitted that the recommendation of the DG for the compulsory supply of CAMs may hinder
competition in markets which may, in turn, undermine the avowed objective of the Act. For
instance, the requirement to compulsorily supply CAMs which at present cost as much as or even
higher than STBs may result in creation of barriers for entry of new DTH service providers,
because of the increased cost of providing services. At the same time, existing firms may exit the
market if the humongous cost of conversion to a particular technology standard or the increased
cost of supplying CAMs makes it unviable for them to remain in business. Moreover, in the event
that the service providers pass down the cost of CAMs to customers, the purported objective of
interoperability may be defeated because customers may not like to pay for the new CAMs and
instead go for a new STB altogether. Therefore, it has been submitted that the Commission may
disregard the recommendations of the DG requiring the DTH service providers to compulsorily
supply CAMs.
Judgment of the CCI
To appreciate the contentions, interoperability issues in DTH industry have to be examined. Interoperability
essentially protects the interest of the subscribers by giving them freedom to shift from one DTH service
provider to another. This would generate healthy competition amongst the DTH operators, resulting in gains
for the subscribers both in terms of subscription charges as well as quality and value addition to service.

For effective technical interoperability, the STB used by a subscriber has to be able to decode signals
transmitted in MPEG2 and MPEG4 technologies, depending on the format being used by the DTH service
provider. Whereas an STB capable of decoding MPEG 4 format signals can also decode MPEG 2 format, the
converse is not possible. Some of the older DTH operators like Dish TV use MPEG 2 format while some
newer operators, like Big TV use MPEG 4 format. That is why some of the older operators using MPEG 2 have
STBs complying to that technology and therefore, these are not technically compatible with MPEG 4
technology.

A related aspect of this technical compatibility is the CAM card that is inserted in the STB. The CAM card is a
device that decrypts the signals of a particular DTH operator. Thus, for a subscriber to be able to view the
signals, he must have the right STB compatible with the compression technology used by the operator
(MPEG 2 or 4) as well as a CAM card that decodes the encryption by that service provider.
It can be seen that to achieve full interoperability, it is required that all STBs are universally
compatible i.e. capable of both MPEG 2 and 4 compression technologies. Secondly, they must be
designed to have a separate slot where CAM of any service provider can be inserted. Thirdly,
both STBs and CAMs should be independently available in the market for subscribers. As will be
seen in the following discussion, considerable progress has been made through regulatory
intervention to achieve the first two steps. The third step has commercial limitations as presently,
the cost of production of CAMs is almost as high as that of STBs.
As the TRAI and the licensing authority of DTH services are seized of the issue of technical
interoperability of DTH services in the light of technological advancement, we are of the
considered opinion that any interference at this stage of evolution of technology by this
Commission may not be appropriate. The informant has referred to efforts made by FCC of USA
and European Commission to promote interoperability. It is noted that in both these jurisdictions,
these efforts are being made by the sectoral regulators and not by competition regulators. The
plausible reason could be that interoperability would bring in competitive advantages but there are
technological constraints that have yet to be overcome. In India, the existing licensing conditions
also espouse technical interoperability in the DTH services but there are certain inherent technical
problems in fully implementing it at this juncture. This can only be resolved by the TRAI and the
Government by bringing about changes in specifications to be prescribed by BIS for STBs. There
is no evidence that the current market practice is a result of any action in concert by various DTH
service providers and hence they cannot be said to be in infringement of the provisions of section
3 of the Act.