REVISITING BHARTI AIRTEL LTD. V. RELIANCE INDUSTRIES LTD.

& ANR

Abstract- Over the years, predatory pricing has become an important subset of abuse of
dominant position under Indian Competition Law. Predatory pricing, especially in the
telecommunications sector, has been a persistent global problem for a while now. It has
acquired even greater significance in India with the entry of Reliance Jio into the market,
and the subsequent onslaught of allegations regarding anti-competitive behaviour. Here,
we present a critique of the Competition Commission of India’s judgment in Bharti Airtel
Ltd. v. Reliance Industries Ltd. & Anr. The objective of this paper is to show that CCI’s
analysis in the case was flawed on three counts- first, what would be the relevant market
in the case; second, the ascertainment of Reliance Jio’s dominance in the relevant marker;
and third, whether or not Reliance Jio abused its dominant position by indulging in
predatory pricing.

I. INTRODUCTION

One of the most important elements of the evolving competition law jurisprudence across the
world is the abuse of dominance by a firm. A commonly used method to abuse this dominance is
the adoption of the practice of predatory pricing. Indian competition law has duly recognised the
same, and created provisions to proceed against predatory firms in the Act. 1 Predatory pricing in
the telecommunications sector has been a global problem for a while now, but has become
significant recently in India with the entry of Jio into the market and the subsequent onslaught of
allegations regarding anti-competitive behaviour. In light of the various jurisprudential and
regulatory developments resulting from the case of Bharti Airtel Ltd. v. Reliance Industries Ltd. &
Anr, this paper attempts to critique the decision as well as subsequent developments.

In doing so, the authors first look at the manner in which relevant market was ascertained by the
Competition Commission of India to argue that the appropriate product market to be considered
in this case ought to have been determined as the provision for wireless 4G LTE services, contrary
to the finding of the Commission. Following this, the question of dominance is examined through
an analysis of the factors of market share, barriers to entry and countervailing buying power – each
of which is a mandatory prescription under the relevant provisions of the Act. The paper
subsequently discusses the concept of predatory pricing and the legal framework governing it in

1
Hereinafter, the Act.
India. The strength of arguments in the decision of the Commission in the Bharti Airtel case is
then evaluated to identify whether the same were rightly considered. The paper finally examines
the merits in using the Long-run Average Incremental Cost method over the Average Variable
Cost method to measure utility rates, by listing both its advantages for and its suitability to the
telecommunications industry in India.

II. INCORRECT ASCERTAINMENT OF RELEVANT MARKET

Under the 2002 Act, an analysis of an entity’s dominant position commences with the delineation
of the relevant market as “dominant position” refers to a position of strength enjoyed by an
enterprise in the relevant market.2 In Bharti Airtel v Reliance Jio, the CCI held that the relevant
product market is ‘provision of wireless telecommunication services to end users’, while relevant
geographic market is ‘each of the 22 telecommunication circles in India’.3 CCI did not explicitly
rely on any of the factors listed in Section 19(6) and 19(7) for the determination of the same.
Nevertheless, without contesting the relevant geographic market determined by the CCI, the
authors shall argue that the CCI’s ascertainment of relevant product market was incorrect.

In its analysis, the CCI stated that any telecom service provider, like the Bharti Airtel (Informant)
and Reliance Jio (Opposite Party-2), provides its services in a bundled form. This bundle includes
voice services as well as internet services, which are used through the same mobile handset. 4 The
Commission added that various telecom service providers are also similarly placed to offer
internet-only services, along with the bundled services. Therefore, there was no requirement to
distinguish between the two, making the relevant market the broad market for ‘wireless
telecommunication services’. The CCI gave consideration to the fact that over the years, the
evolution brought about in these services has been one pertaining to the internet services. 5 For
instance, 2G offers voice and basic data services, 3G offers voice and enhanced data services and
4G (technically known as 4G LTE) mainly offers much more advanced data services. Further, after
the launch of its 4G services, OP-2 itself expected data to be its primary source of revenue, rather

2
Competition Act 2002, s 4.
3
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017, para 16 (Competition Commission of
India).
4
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017, para 15 (Competition Commission of
India).
5
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017, para 16 (Competition Commission of
India).
than calls, indicating the significance of data services. 6 Yet CCI did not agree with the reasoning
that wireless telecommunication services can be sub-divided on the basis of the superiority of the
internet technology. It refused to have a separate relevant market for 4G services on the premise
that 3G and 4G services are comparable.

However, 4G services will form a separate relevant market for the following reasons:

First, there is an absence of demand-side substitutability between 3G and 4G services. Under

Section 19(7), demand-side substitutability is to be determined on the basis of physical
characteristics or end use, consumer preferences, price of goods or services, etc.7The
distinction between 3G and 4G is primarily of speed, the latter being much higher in speed. As
some surveys show, the principal determinant of consumer decisions to buy any broadband service
is the high bandwidth (the rate of data transfer that determines speed) offered by the service. 8 In
Wanadoo Interactive, the European Commission also drew a distinction between high speed and
low speed internet (an issue not appealed later). Although both high speed and low speed internet
offer some common features, some applications available with high speed internet are usually not
feasible with low speed access. 9 Further, even at the time of launch of first 4G service in India, it
was widely believed that 4G, which was to be five times faster than 3G, was to be used for high-
definition television streaming and video conferencing, services not possible through 3G. 10 Even
in the case of Exclusive Motors Pvt. Ltd v. Automobile Lamborghini,11 though for some other kind
of product, factors such as high speed, exclusive catering to a distinct class of consumers, etc. were
relied on for determining the relevant market.

It is also crucial to note that the explanation behind the failure of wide-scale 3G adoption in India
is that the difference between 2G and 3G speed was not completely discernable in several areas,

6
Jai Bhatia & Advait Rao Palepu, ‘Reliance Jio: Predatory Pricing or Predatory Behaviour?’ (2016) 51(39) EPW
<https://www.epw.in/journal/2016/39/web-exclusives/reliance-jio-predatory-pricing-or-predatory-
behaviour.html#:~:text=When%20a%20firm%20not%20only,behaviour%20is%20considered%20%E2%80%9Cpre
datory.%E2%80%9D> accessed 28 August 2020.
7
Competition Act 2002, s 19(7).
8
Robert Crandall et al, ‘The Empirical Case Against Asymmetric Regulation of Broadband Internet Access’ (2002)
17(1) Berkeley Technology Law Journal 953, 963.
9
Wanadoo Interactive Commission Decision of 16 July 2003 para 175.
10
‘First 4G data service launched in India’ (BBC, 10 April 2012) <https://www.bbc.com/news/world-asia-india-
17662393> accessed 28 August 2020.
11
Exclusive Motors Private Limited v. Automobili Lamborghini SPA Case No 52 of 2012 (Competition Commission
of India).
deterring consumers from switching to 3G.12 This clearly implies that it is the difference in speed
which incentivizes consumers to move to a more advanced data service, highlighting the
importance of speed in consumer preferences. Therefore, it can be reasonably argued that the
reason for the rapid wide-scale adoption of 4G (drastically wider than 3G) in a very short time-
span is a result of 4G’s high speed, clearly distinguishing 4G from 3G. Another reasoning given
by CCI was that the tariff for 3G and 4G services are similar, making them substitutable. 13
However, the reason for identical prices for the two services is not that the cost and features of
these services is identical. On the contrary, the reason for such identical prices is the large scale
mobile broadband investment over the course of past few years. 14 Therefore, despite the evolved
equipment and spectrum requirements in 4G, their price charged to the end user could be
substantially reduced.

Second, there is a lack of supply-side substitutability between 4G and 3G services. Section 2(t) of
the Act says that for products to be within the same relevant market, they have to be substitutable
by reason of their characteristics.15 Additionally, Notice on the application of the competition rules
to access agreements in the telecommunications sector (hereinafter ‘Notice for the
telecommunications sector’) also takes into account supply-side substitutability. 16 In this regard,
CCI noted:

“From the supply side, any new entrant in the telecom market is likely to adopt the
technology available at that time and later upgrade its network from time to time to
migrate or additionally offer services based on newer technologies. In this ongoing
process of evolution, it is not appropriate to differentiate wireless telecommunication
services based on technologies used for providing such services”17

12
Saptarishi Dutta, India might be moving to 4G era, but 3G hasn’t really taken off’ (Quartz India, 14 August 2014)
<https://qz.com/india/240506/india-might-be-moving-to-4g-era-but-3g-hasnt-really-taken-off/> accessed 28 August
2020.
13
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017, para 16 (Competition Commission of
India).
14
GSMA, The Mobile Economy India 2015 (Newsletter, 2015) <https://www.gsma.com/asia-pacific/resources/the-
mobile-economy-india-2015/> accessed 28 August 2020.
15
Competition Act 2002, s 2(t).
16
Notice on the application of the competition rules to access agreements in the telecommunications sector, Official
Journal of the European Communities OJ [1998] C 265/2, para 40.
17
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017 CCI, para 16.
Although 2G and 3G equipment can be updated to some degree, they cannot provide the same
performance/cost ratio offered by equipment designed specifically for more evolved technology
like 4G.18 Newer mobile technologies also require much greater access to spectrum without which
the newer networks would be unable to deliver adequate internet service altogether. 19 This reflects
a lack of supply-side substitutability between equipment used for varying telecommunications
standards.

Third, CCI’s analysis fails another test for relevant market given in Notice for the
telecommunications sector. Under this test, it must be asked if all suppliers of the service in
question increased their price in the range of 5% to 10%, would their collective profit rise. If yes,
then the service in question forms a separate relevant market. 20 As a mobile broadband service,
though not a ‘necessity’ in the traditional sense,21 has become increasingly useful to end
consumers, its price elasticity of demand has become considerably inelastic. This critical
usefulness of high speed broadband service has been well recognized. 22 A conservative estimate
of price elasticity of demand for mobile broadband service has been -0.5. 23 Therefore, assuming
other things to be constant, an increase in price of 4G services would not lead to an equivalent
decrease in internet subscription, causing a rise in profits. It should also be noted that an increase
in price by a 4G service provider ‘X’ would not automatically lead to people resorting to 3G
services by ‘X’. Instead, a reasonable course of action would be to first switch to 4G services
offered by some other service provider (considering the singular benefits of 4G- high speed
coupled with relatively lower prices), provided that the cost of switching to any other service
provider is not high enough to deter the switching altogether.

Hence the relevant market should have been determined as ‘provision for wireless 4G LTE
services to end users in each of the 22 telecommunication circles in India’.

18
Case No COMP/M 7632 - Nokia/ Alcatel-Lucent [2015] EC para 21.
19
GSMA, The Mobile Economy India 2016 (Newsletter, 2016).
20
Notice on the application of the competition rules to access agreements in the telecommunications sector, Official
Journal of the European Communities OJ [1998] C 265/2, para 40.
21
Rajeev Goel, Edward Hsieh, Michael Nelson and Rati Ram, ‘Demand Elasticities for Internet Services’ (2006)
38(9) 975.
22
Catherine Rampell, ‘Does Lowering the Price of Broadband Increase Its Use?’ (Economix (The New York Times),
22 May 2009) <https://economix.blogs.nytimes.com/2009/05/22/does-lowering-the-price-of-broadband-increase-its-
use/> accessed 28 August 2020.
23
William Lehr, ‘Benefits of Competition in Mobile Broadband Services’ (2014)
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420488> accessed 28 August 2020.
III. ESTABLISHING DOMINANT POSITION

Considering the relevant market delineated above, it is necessary to assess Reliance Jio’s (OP-2)
dominant position from a renewed perspective. Section 19(4) of the Act states that while assessing
whether or not an entity enjoys dominant position, the Commission must give due regard to all or
any of the factors stated thereunder. These factors include market share of the enterprise, 24 barriers
to entry in the market,25 countervailing buying power,26 etc. It is a well settled principle,
established through numerous cases, 27 that market share is not to be the sole decisive factor for
establishing dominant position. Since CCI’s determination of relevant market was incorrect, it
automatically led to a faulty analysis of market shares of each of the service providers in the
market. CCI relied on the market shares of the service providers in the larger market of wireless
telecommunication services, which not only encompassed all levels of internet services, but also
encompassed all telecommunication services even without data services. 28After the official launch
of 4G LTE services by OP-2 on September 1st, 2016, the total number of 4G subscribers in India
at the end of September amounted to 26.73 million, out of which OP-2 had a share of 15.98

24
Competition Act 2002, s 19(4)(a).
25
Competition Act 2002, s 19(4)(h).
26
Competition Act 2002, s 19(4)(i).
27
M/s Kansan News Pvt Ltd v M/s Fast Way transmission Pvt Ltd & Ors Case No 36 of 2011 (Competition
Commission of India), Belaire Owner’s Association v DLF Ltd & Ors Case No 19 of 2010 (Competition
Commission of India).
28
Telecom Regulatory Authority of India, Yearly Performance Indicators of Indian Telecom Sector
(First Edition) 2016 (3 July 2017) ch 1.
million.29 At the end of December 2016, total 4G subscribers were 86.77 million, out of which
OP-2 alone had 72.15 million subscribers.30

Source: TRAI
The third bar shows the number of LTE subscribers (86.77 million) out of total number of wireless internet
subscribers

Source: TRAI

In the table above (“Internet Subscriber Base and Market Share of top 10 Service Providers- Dec
2016”), it is relevant to note that the number of subscribers of all service providers do not reflect
the number of 4G LTE subscribers, but reflect the total number of subscribers (4G, 3G and 2G).
However, an exception to this is Reliance Jio (OP-2) as it provides only 4G LTE services.
Therefore, analyzing the two images above, total number of 4G LTE subscribers is 86.77 million,
and total number of Reliance Jio subscribers (all 4G LTE subscribers) is 72.15 million.

29
Telecom Regulatory Authority of India, The Indian Telecom Services Performance Indicators
July - September, 2016 (30 December 2016) ch 1.
30
Telecom Regulatory Authority of India, Yearly Performance Indicators of Indian Telecom Sector
(First Edition) 2016 (3 July 2017) ch 1.
Consequently, the rest of the service providers share the remaining 14 million 4G LTE subscribers
amongst themselves.31Therefore, Reliance Jio’s market share before the decision of Bharti Airtel
v. Reliance Jio was approximately 83%. Size and resources of the all the competitors in the relevant
market, a crucial factor under Section 19(4)(c), becomes an insignificant 17%. In the light of the
same, CCI’s reasoning that “Even if one were to consider 4G LTE services as the relevant product
market, OP-2 is not likely to hold dominant position in such market on account of the presence of
the Informant, Vodafone, Idea, etc.,”32 seems shaky.

There are also significant barriers to entry in the market, making it probable for OP-2 to retain its
dominant position. One such barrier, as recognized under Section 19(4)(h) is economies of scale. 33
Presence of economies of scale would mean that a doubling of output requires less than a doubling
of cost.34 Telecommunications sector, with economies of scale, would fall into this category. In
this sector, there are high investment costs in the beginning arising out of establishing the necessary
infrastructure. Nevertheless, the established infrastructure can generate a substantial number of
services- after a point, the variable cost of each output can be negligent. The high investment costs
in the beginning would make it difficult for any new entrant to penetrate the market unless they
had sufficient economic backing like OP-2 did.35 Sometimes, the conduct being investigated can
itself become a barrier to entry.36 Apart from structural barriers like economies of scale,
behavioural barriers are also being recognized. 37 Therefore, a zero pricing strategy can itself have
the effect of deterring entry into the market. The CCI failed to take any of these into account.

31
‘India had 86.77 million 4G subscribers in 2016: TRAI’ (telecomlead, 3 July 2017)
<https://www.telecomlead.com/telecom-statistics/india-86-77-million-4g-subscribers-2016-trai-77616> accessed 28
August 2020.
32
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017, para 21 (Competition Commission of
India).
33
Michal Gal, ‘Below-Cost Price Alignment: Meeting or Beating Competition’ (2007) 28(6) European Competition
Law Review <https://works.bepress.com/michal_gal/17/> accessed 25 February 2020.
34
Robert S. Pindyck and Daniel L. Rubinfeld, Microeconomics (8th edn, Pearson) 25.
35
Jai Bhatia & Advait Rao Palepu, ‘Reliance Jio: Predatory Pricing or Predatory Behaviour?’ (2016) 51(39) EPW
<https://www.epw.in/journal/2016/39/web-exclusives/reliance-jio-predatory-pricing-or-predatory-
behaviour.html#:~:text=When%20a%20firm%20not%20only,behaviour%20is%20considered%20%E2%80%9Cpre
datory.%E2%80%9D> accessed 28 August 2020.
36
Robert Anderson, Timothy Daniel, Alberto Heimler and Thinam Jakob, ‘Abuse of Dominance’ in A Framework
for the Design and Implementation of Competition Law and Policy (The World Bank and OECD, 1999) 72.
37
ibid.
Dominant position, as defined under Section 4, is a position of strength which also enables an
enterprise to affect its competitors in its favour.38 As a response to OP-2’s zero pricing policy,
multiple other telecom operators also had to lower their own prices. Informant Bharti Airtel
announced that it would slash its 3G and 4G internet charges by up to 80% to as low as ₹51 per
GB.39 Airtel had also announced a singular 4G data pack which would offer “free” internet services
for a 90-day period.40 Vodafone also resorted to revising its prices for data offerings downwards.
Resultantly, these service providers were led to face massive revenue losses, 41 clearly showing the
ability of OP-2 to affect its competitors in its favour. In MCX v. National Stock Exchange, CCI
also held that this position of strength under Section 4 should not necessarily make the enterprise
affect its competitors in its favour. On the other hand, it is sufficient even if the enterprise just has
the ability to affect its competitors in its favour.42 If an enterprise has adequate financial backing,
it can take the risk of deferring its profit and indulge in market expansion through zero pricing.
“The greater the financial and commercial strength of an enterprise, the longer it can wait and
the greater risks it can take”,43 added CCI. OP-2 has been repeatedly claimed to be the “world’s
largest startup”, with a huge financial backing,44 clearly showing its ability to defer profits and
take long-term risks for capturing market. This shows a clear position of strength. 45

There is also a lack of countervailing buying power, a factor crucial under Section 19(4)(i). 46 In
the relevant market there is absence of countervailing buying power because if a customer wishes

38
Competition Act 2002, s 4.
39
Sundeep Khanna and Kalpana Pathak, ‘Reliance Jio sends a message to rivals: It’s war’ (Livemint, 2 September
2016) <https://www.livemint.com/Companies/D4leWGTopPio6OYUQg2CEP/Mukesh-Ambani-kicks-off-Reliance-
Jio-services-at-company-AGM.html> accessed 28 August 2020.
40
Surajit Dasgupta, ‘Airtel Launches Special 90-Day Free Data Pack For 4G Customers’ (NDTV, 23 September
2016) <https://www.ndtv.com/business/airtel-launches-special-90-day-free-data-pack-for-4g-customers-1465486>
accessed 28 August 2020.
41
Kiran Rathee, ‘Reliance Jio effect: Bharti Airtel's net profit down 76% to Rs 343 crore’ (Business Standard, 1
November 2017) <https://www.business-standard.com/article/companies/reliance-jio-effect-bharti-airtel-s-net-
profit-down-76-to-rs-343-crore-117110100046_1.html> accessed 28 August 2020.
42
MCX Stock Exchange Ltd v National Stock Exchange of India Ltd & Anr Case No 13 of 2009, para 10.38
(Competition Commission of India).
43
MCX Stock Exchange Ltd v National Stock Exchange of India Ltd & Anr Case No 13 of 2009, para 10.40
(Competition Commission of India).
44
Muntazir Abbas, ‘Reliance Jio is world’s largest startup with Rs 150,000 crore investment: Mukesh Ambani’ (The
Economic Times, 30 March 2016) <https://economictimes.indiatimes.com/industry/telecom/reliance-jio-is-worlds-
largest-startup-with-rs-150000-crore-investment-mukesh-ambani/articleshow/51613248.cms?from=mdr> accessed
28 august 2020.
45
MCX Stock Exchange Ltd v National Stock Exchange of India Ltd & Anr Case No 13 of 2009, para 10.40
(Competition Commission of India).
46
Competition Act 2002, s 19(4)(i).
to switch from OP-2 to any other service provider, the customer will have to pay to the new service
provider for the services, unlike what is required in the business model of OP-2. This switching
cost would dis-incentivize customers from shifting to new service providers, making them
incapable of exercising any countervailing buying power. Assuming quality of service to be stable,
unless OP-2 increased its prices to a level higher than the switching cost of switching to a new
service provider, customers would have no incentive to switch.

Holistically taking all the above mentioned reasons into account, it can be concluded that OP-2
was in a dominant position in the relevant market.

IV. PREDATORY PRICING IN INDIA

Predatory pricing is one of the forms of abuse of dominant position, and has been duly
acknowledged in the Indian competition law jurisprudence. Predatory pricing, when adopted by
firms, consists of a two-pronged strategy, which seeks to stifle competition. In the first stage, called
the predatory stage, the firm in the dominant position causes its prices to be reduced below a certain
threshold which makes recovery of costs by the firm’s competitors nearly impossible. Through
such conduct, the existing competitors are forced to be deterred in their expansion, put in a much
weaker position or even driven out of the market entirely. The predatory stage ends when these
conditions and barriers are created. The recoupment stage (the second stage) begins when the firm
in the dominant position seeks to recoup the losses made in the predatory stage. Recoupment
occurs in various ways, in accordance with the predatory behaviour adopted by dominant firms. 47
For instance, it may occur as a result of a rival exiting the market causing an increase in demand,
through the deterrence of entry, or through the creation of a reputation as a predator, which could
discourage future rivals.48

Under section 4 of the Act, explanation (b) lays down a two-tier test to assess if the conduct of a
dominant enterprise is predatory. The first requirement is that the price must be below cost which
is determined by CCI regulations and the second requirement is that the dominant enterprise must

47
Christopher R Leslie, ‘Predatory Pricing and Recoupment’ (2013) 113 Columbia Law Review 1695, 1696.
48
In M/s. Transparent Energy Systems Pvt. Ltd. v. TECPRO Systems Ltd. (Case No. 09 of 2013) the Commission
held the following three conditions for identification of predation – below cost pricing, intention of driving
competitors out of the market, planning for recovery/recoupment of losses. This position, however, remains
unsettled in light of the non-mandatory nature of the requirement for the CCI to establish recoupment, thereby
leading us to exclude this analysis from the paper.
have the intent to reduce competition or eliminate competitors. 49 According to regulations
published by the CCI on determining the cost of production, the default cost benchmark is average
variable cost (as a proxy for marginal cost). Despite this, other cost measures such as avoidable
cost, long-run average incremental cost and market value may be considered by the CCI and the
Director General (DG).50 These must depend on the nature of the industry, market and technology
51
used and the reasons for using these must be provided in writing. While both the CCI and
COMPAT have given decisions in this regard, earlier, they failed to provide any guidance on what
cost benchmark must be applied in predatory pricing cases.

V. CCI ON ALLEGATIONS OF PREDATORY PRICING

The CCI, in its analysis of the Airtel-Jio case, discussed the allegations of predatory pricing
levelled against Jio. It noted that a question of examining abuse would not arise, since Jio did not
occupy a dominant position in the market. In response to the allegations that Jio’s introductory
offer would fall under the definition of below-cost pricing, has resulted in a huge shift in consumer
base and would amount to predation, the Commission highlighted that Airtel had not demonstrated
the fact of reduction or elimination of competitive players in the market, nor was there any proof
as to intent. It went on to hold that providing free services alone would not be a cause for concerns
about anti-competitive behaviour, unless it was offered by a dominant player with the intention of
excluding or eliminating competitors. In its opinion, Jio was not raising competitive concerns in
incentivising consumers to subscribe to its services through offers and schemes since the same
would be necessary in the presence of big players with “sustained business presence and financial
strength” already operating in the market. 52 It therefore concluded that this being a short-term

49
Competition Act 2002, s 4; Shweta Shroff Chopra et al, ‘Dominance – India’ (Getting the Deal Through, April
2019) <https://gettingthedealthrough.com/area/10/jurisdiction/13/dominance-india/> accessed 25 February 2020.
50
In MCX Stock Exchange v National Stock Exchange India and Ors (Case No 13 of 2009), the DG concluded that
there is a strong case for using long-run average incremental cost or average total cost over opting for average
variable cost.
51
Chopra et al (n 4).
52
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017, para 22 (Competition Commission of
India).
business strategy for market penetration, could not be a subject matter for investigation under the
Act, and that no prima facie case for contravention existed. 53

This argument of “meeting the competition”, a defence to predatory pricing under Section 4, is
very similar to what CCI in MCX v. National Stock Exchange called the “defence related to
development of nascent market”.54 Nascence denoted a phase at the time or immediately after the
birth of a market, when enterprises are still discovering new dynamics quite frequently. However,
later, when the market situations have played out, the market is no longer “nascent” even if the
market is still not fully developed and players are still facing troubles. Therefore, strategies
required to keep the new market alive are not necessary after the nascent stage. At the end of
March, 2017, out of 400 million of wireless internet subscribers, 4G LTE had a subscriber base of
129.32 million, the second highest out of all technology trends in wireless internet access. 55
Therefore, even if 4G LTE market was not fully mature, it could be seen as nascent either. Further,
as shown above, at the end of December 2016 itself, Jio had captured a market share of 83%,
clearly indicating that its pricing strategy was no longer needed as “penetrative” or
“promotional”.56 Therefore, its ‘Happy New Year Offer’ extending its uncharged data and voice
call services till 31st March, 2017 cannot assume the defence of meeting the competition.

As a contrast to the existing legal framework consisting of high thresholds set by courts in
adjudicating upon predatory pricing claims, modern economics views predatory pricing as a
business strategy. There could be situations where entry barriers are created as a result of a new
enterprise penetrating the market and gaining a significant share of market power, potentially
leading to a subsequent abuse of the same in the period post-predation. 57 There is a mention of the
Bolton test in the NSE case, which looks at predatory pricing being adopted as an economically
rational business strategy. It provides two variants of below-cost pricing measures – first, a

53
Bharti Airtel Ltd v Reliance Industries Ltd & Anr Case No 03 of 2017, para 23 (Competition Commission of
India).
54
MCX Stock Exchange Ltd v National Stock Exchange of India Ltd & Anr Case No 13 of 2009, para 10.56
(Competition Commission of India).
55
Telecom Regulatory Authority of India, Yearly Performance Indicators of Indian Telecom Sector
(First Edition) 2016 (3 July 2017) ch 1.
56
MCX Stock Exchange Ltd v National Stock Exchange of India Ltd & Anr Case No 13 of 2009, para 10.56
(Competition Commission of India).
57
Patrick Bolton, Joseph F Brodley and Michael H Riordan, Predatory Pricing: Strategic Theory and Legal Policy
<https://www.justice.gov/sites/default/files/atr/legacy/2006/10/30/218778.pdf> accessed 28 August 2020.
defensive and competition-driven price reduction and second, a market expanding price cutting.
The former is usually carried out in response to a change in a competitor’s pricing, whereas the
latter is carried out with the objective of entering a new market. Jio’s below-cost service pricing
would therefore qualify as the latter.58 A market expanding price cutting is especially problematic
for an industry, since its consequences are either an improvement in competition or an
exclusion/reduction of competition. Since its inception in 2016, Jio has become the leading
telecom operator in India, and is set to capture nearly half the Indian telecom market by 2025. 59
There has already been a reduction in terms of competition as a result of Jio’s entry, with the other
operators carrying out acquisitions and the market moving towards oligopoly.

VI. TRAI’S ORDER ON AVC

The entry of Jio into the telecom market and its initial scheme of providing free data and voice
calls resulted in a gargantuan shift in consumer base in its favour. Even after the suspension of the
scheme, Jio charged customers a rate heavily reduced in comparison to what was levied by its then
competitors – Airtel, Idea and Vodafone. Following this, the Telecom Regulatory Authority
(TRAI) in 2018, through a ruling,60 amended the predatory pricing rule, providing for an
interesting perspective. The amendment permitted Jio to continue offering its services at a low
price, while simultaneously banning the other market players from reducing their existing prices
to combat competition, using the reasoning that Jio, as a new entrant, would be incapable of
predation, while the others would be. Further, TRAI went on to hold that a telecom operator should
necessarily hold a market share of not less than 30% to even be investigated for allegations of
predatory-pricing.

This amendment went on appeal to the Telecom Disputes Settlement Appellate Tribunal (TDSAT).
TDSAT, in its ruling in the appeal, held that this definition of Significant Market Power (SMP)

58
MCX Stock Exchange Ltd v National Stock Exchange of India Ltd & Anr Case No 13 of 2009, para 7.49
(Competition Commission of India).
59
Jio may capture nearly half the Indian telecom market by FY25: Bernstein’ (Business Standard, 17 June 2020)
<https://www.business-standard.com/article/companies/reliance-jio-to-capture-48-indian-telecom-market-share-by-
fy25-bernstein-120061700808_1.html> accessed 28 August 2020.

60
The Telecommunication Tariff (Sixty Third Amendment) Order, 2018 (No. 1 of 2018)
<https://trai.gov.in/sites/default/files/TTO_Amendment_Eng_16022018.pdf> accessed 28 August 2020.
was pre-determined to a degree that would result in the dilution of the concept of SMP, was
arbitrarily fixed with an ineffective consultation process, and was not backed by any intelligible,
convincing or objective criteria. More importantly, the TDSAT specifically highlighted that
TRAI’s decision provided “artificial protection to a TSP (telecom service provider) who may have
the capability and intent to destabilise the sector through predatory-pricing”, thereby directly
challenging the CCI’s holding.61 The TRAI, in this decision, also held that average variable cost
(AVC) would be the best way to measure the existence of predatory pricing. 62 In this paper,
however, the authors would like to highlight the use of the long-run average incremental costs
(LRAIC) method as a more efficient way to examine predatory pricing.

VII. LRIC- ITS APPROPRIATENESS FOR THE TELECOM INDUSTRY

In order to better contextualize predatory pricing in the telecommunications industry, it would be

useful to understand the appropriate method to be used in order to set utility rates. It has been
widely accepted that utility rates ought to be based on LRAIC over short-run costs. LRAIC can be
defined as the additional cost incurred by the firm in the long-term while providing a specific
service and is based on the assumption that all other production-related activities being carried out
will remain untouched. It can also be defined as the total cost that could be avoided by a firm in
the long term if it chose not to provide that specific service. Upon examination, it is clear that the
two definitions are complementary in nature.63 LRAIC models are therefore used in order to
efficiently establish costs for price regulation in the telecommunications industry. Competition
and regulation are sought to be introduced to the telecom industry in order to avoid the undesirable
result of a deadweight loss arising if the industry were to become monopolistic in nature. 64 The
adoption of LRAIC models would therefore be particularly appropriate for recently privatized
utilities, especially for those with high fixed costs and quick technological changes, and to foster

61
Sunil Jain, ‘Trai is the judge and Trai is the Jury’ (Financial Express, 19 June 2019)
<https://www.financialexpress.com/opinion/trai-is-the-judge-and-trai-is-the-jury/1611700/> accessed 28 August
2020.
62
‘Average Variable Cost best way to determine predatory pricing: TRAI’ (BusinessLine, 16 February 2018)
<https://www.thehindubusinessline.com/economy/average-variable-cost-best-way-to-determine-predatory-pricing-
trai/article22777230.ece> accessed 28 August 2020; The Telecommunication Tariff (Sixty Third Amendment)
Order, 2018 (No. 1 of 2018) <https://trai.gov.in/sites/default/files/TTO_Amendment_Eng_16022018.pdf> accessed
28 August 2020.
63
Roger L Conkling, Marginal Cost in the New Economy (first published 2004, Routledge 2015) 63.
64
Richard B McKenzie and Dwight R Lee In Defense of Monopoly: How Market Power Fosters Creative
Production (University of Michigan Press 2008) 25.
competition among older and new participants. Besides, LRAIC pricing can be used to ensure
consumer rights are secure, to let various service providers get sufficient returns to cover their
future ventures on fixed costs, and to make it feasible for future investors to enter competitive
markets.65

One of the most attractive characteristics associated with LRIC pricing plans is the sharing of gains
from productivity derived amongst the different market players. In this manner, actualising LRAIC
pricing plans hinders monopolistic profits by the interconnection service providers. The pertinence
of the LRAIC system consequently relies upon the concept of efficiency. As a result,
interconnection rates are usually derived from a standard set by an efficient operator. When these
rates are equivalent to long run incremental costs, maximum economic efficiency is reached.
LRAIC pricing plans are forward looking and act as a better motivator to ensure static cost
efficiency.66

New economy firms, like telecommunication, are described by declining marginal and average
costs. LRAIC pricing is a method of dealing with the issues of diminishing average and marginal
costs at enterprises where losses occur while pricing as per long term marginal expenses. The
telecommunications industry is characterized by high fixed costs in the beginning, including costs
incurred in establishing the original infrastructure of wires and cables. However, once this
infrastructure is in place, the AVC of providing can be as low as zero. As Richard Whish writes,
“The AVC of telephone calls is so low that there would hardly ever be predatory prices if the AVC
standard were to be applied”.67 Therefore, the price which covers the variable cost of providing
additional services will be substantially lower than the price needed to cover the cost of producing
the increment.

With specific respect to the Indian telecommunication industry, a string argument can be made for
the adoption of an LRAIC model upon considering the abovementioned factors. Reliance Jio’s
financial statements of 2016-17 show, Jio had over 100,000 sites, substantially more than any other

65
Colin Blackman and Lara Srivastava eds, ‘Telecommunications Regulation Handbook’ (World Bank, 2011) <
http://documents1.worldbank.org/curated/en/527131468338984285/pdf/NonAsciiFileName0.pdf> accessed 28
August 2020.
66
Paul Noumba Um et al ‘A Model for Calculating Interconnection Costs in Telecommunications’ (World Bank,
2004)<http://documents1.worldbank.org/curated/pt/993401468779995571/pdf/280390PAPER0Model0for0calculati
ng0costs.pdf> accessed 28 August 2020.
67
Richard Whish and David Bailey, Competition Law (7th edn, Oxford University Press 2009) 747.
operator had at any point. In addition to fibre backhaul, Jio also had significant technological
innovations needed for setting up of the infrastructure. 68 Furthermore, it was regularly incurring
variable expenses in the nature of Operating Expenses, Depreciation and Amortisation expenses,
etc. All of these infrastructural expenses along with variable expenses, guide us towards the
conclusion that its LRAIC is significantly high, with its VC of providing 4G services to customers
being equivalent to zero. Considering LRAIC as the cost threshold, and assuming that the same is
high implies that Jio’s zero pricing strategy would clearly be predatory. The EU Commission is of
the opinion that pricing below LRAIC is capable of foreclosing competition to efficient
competitors more than any other standard. 69

VIII. CONCLUSION

Sandra Fredman once wrote that while relying on foreign judgments for the substantiation of
analysis, judges must adopt a deliberative approach. A deliberative approach entails giving good
reasons not only for converging with the foreign judgment, but also for diverging.70 As the above
analysis shows, CCI’s ignorance of the reasoning in Wanadoo Interactive and other EC judgments
clearly fails to meet this requirement. Further, over the course of the last several years, CCI has
consistently resorted to inconsistent reasoning in its judgments, and this is most starkly played out
in the determination of relevant market and dominant position. Another significant aspect,
increasingly coming to surface, is CCI’s laxity in adopting standards that are in alignment with
evolving competition scenario in the country. Its fixation with AVC with respect to predatory
pricing is one such instance. Numerous authorities have repeatedly emphasized on the
appropriateness of LRIC, while CCI, along with TRAI, conveniently ignores them. If CCI is
supposedly a body with expertise in competition law, its ignorance certainly comes as a rude shock.

Bharti Airtel v. Reliance Industries Ltd. was perhaps an opportunity for CCI to further the
jurisprudence on predatory pricing, keeping in mind the new competition circumstances in the
country. At this stage, we can only hope that no such opportunities are foregone in the future.

68
‘Reliance Jio Infocomm Annual Report 2016-2017’ <https://www.ril.com/getattachment/0350f0b3-fc2c-42ad-
9fff-979894a7ec1f/Annual-Report-for-the-year-2016-17.aspx> accessed 28 August 2020.
69
Guidance on Article 82, para 67. “Normally only pricing below LRAIC is capable of foreclosing as efficient
competitors from the market”
70
Sandra Fredman, ‘Foreign Fads or Fashion? Role of Comparativism in Human Rights Law’ (2015) 64 ICLQ 631.