Do Reliance Jio’s free offers amount to predatory pricing?
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When Reliance Jio Infocomm Ltd announced tariffs earlier this month, it said its services would be free until the end of the year. On Wednesday, after meeting the telecom regulator, Sunil Mittal, chairman of Bharti Airtel Ltd, said, “I hope Trai (Telecom Regulatory Authority of India) would look into this whole aspect of predatory pricing; we have already requested Trai to look into it.”
This column has said Jio’s pricing strategy will be value destructive for the industry. See here. But predatory pricing is a term that is associated with competition law, and experts in the field say that is something Jio cannot be accused of.
Rahul Singh, a competition law researcher at Balliol College, University of Oxford, says, “Charges of predatory pricing become relevant when a company already has a dominant position in the market. Therefore, the said company has to necessarily be an incumbent with significant market power, in the form of high market share (the degree of market power being assessed relative to competitors) and with respect to access to resources. Jio, being a new entrant, doesn’t fit this description.” Singh also teaches competition law at National Law School of India University, Bengaluru.
Of course, Airtel and other incumbents haven’t invoked competition law and have approached Trai instead. Interestingly, the telecom regulator does have the power to intervene on tariffs, if it feels they are discriminatory, predatory, non-transparent, ambiguous and anticompetitive. See page five of this document, for instance. Indeed, it used this power (regulating tariff plans) while dealing with the issue of Net neutrality earlier this year.
Having said that, even though both incumbents and new entrants have accused each other of predatory pricing earlier (in 2009), Trai has chosen not to intervene when freebies were offered earlier.
“As far as charges of predatory pricing go, since Trai regulations do not define the term, it’s fair to rely on the common understanding of the term. In Jio’s case, this doesn’t apply as it does not have a dominant position in the market,” says Mahesh Uppal, a director at ComFirst consultancy.
“Also, it would be acceptable in any market for a new entrant to offer freebies to win market share. If no free samples or free services are allowed, it will be difficult for anyone to make an entry in the market,” he adds.
Singh goes so far as to say that what Jio has done is not only not anticompetitive but in furtherance of competition. “This is what new entrants are supposed to do— shake things up in a monopolistic/oligopolistic market in order to ensure consumer welfare,” he says.
What about the argument that even though Jio is a new entrant in the telecom industry, it has enormous market power as a result of being one of the largest conglomerates in the country. In other words, is it fair if the company plans to sink a part of its humongous cash hoard until competitors bleed into oblivion?
Of course not. “If Jio garners significant share, and continues to price services below its cost price, charges of predatory pricing may be relevant at that point; although a fresh assessment will have to be made then,” says Singh. For instance, if Jio extends its free services offer, it makes sense to assess its position in the market to rule whether its behaviour is anticompetitive at that point.
Besides, the question of whether or not Jio has a dominant position as a result of its parent’s financial position is best left to the Competition Commission of India (CCI). It involves complex considerations such as relevant market, and Trai is not the authority to address them.
As such, even if there is something to incumbents’ charges about predatory pricing, they are barking up the wrong tree. If they are serious about the charges, they should approach CCI.
The fact that they haven’t perhaps calls their bluff.