TDSAT quashes Trai's predatory pricing rule, analysts say it's too late

With over 250 million subscribers, Jio has achieved a subscriber market share that it was looking at. The TDSAT order will hardly change the market dynamics, say analysts

The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) on Thursday set aside sector regulator Trai’s rule on predatory pricing for lack of transparency in the guidelines determining market share and rates of services. 

While some analysts said the TDSAT order was a substantive relief to incumbents Bharti Airtel and Vodafone Idea, others pointed out it was too late. “Reliance Jio already has over a 40 per cent market share in the B and C circles. Even in metros, its market share is close to 30 per cent. With over 250 million subscribers, Jio has achieved a subscriber market share that it was looking at. The TDSAT order will hardly change the market dynamics now,” said an analyst.

In March, Bharti Airtel, Vodafone and Idea Cellular (now Vodafone Idea) had challenged the amendment made by the Telecom Regulatory Authority of India (Trai) in the Telecommunication Tariff Order. 

“The impugned tariff amendment order is set aside insofar as it changes the concept of SMP (significant market player), non-predation and the related provisions,” the TDSAT Bench comprising Justice S K Singh and member A K Bhargava said in its order. The appellate tribunal ordered Trai to rework the predatory pricing rule within six months.  

Based on the second-quarter gross revenue data, Jio is a significant market player in 11 circles (versus five circles in the first quarter). These 11 circles are Kolkata, Gujarat, Madhya Pradesh, Punjab, Rajasthan, West Bengal and five (of the six) ‘C’ category circles. Jio is the market leader in 12 circles (none in metros and the ‘A’ circle, and seven in the ‘B’ circle). Except Kerala, Jio has over 30 per cent market share in all of the ‘B’ and ‘C’ circles, with the highest share being in Bihar at 46.5 per cent.

The TDSAT further held that segmented offers and discounts offered in ordinary course of business to existing customers without any discrimination within the targeted segment did not amount to a tariff plan and therefore “need no reporting in manner prescribed for regular tariff plans”. 

Moreover, instead of reporting of all such discounted offers not falling within the cap of 25 tariff plans, Trai may call for details of any segmented offer about which it may receive specific complaints.

In February 2018, Trai said it would impose financial disincentive of up to Rs 5 million per circle on operators if their service rates were found to be predatory in nature. The amendment was issued after old telecom operators Airtel, Vodafone, and Idea alleged that Jio was offering services at predatory rates.

Trai’s rule considers a tariff predatory if in a “relevant market” a telecom operator with over 30 per cent market share offers services at a price which is below the average "variable cost", with a view to reduce competition or eliminate the competitors.

Trai will arrive at "variable cost" after deducting fixed cost and share of fixed overheads borne by the company from total cost incurred by it for running business during the period under review. 

The regulator has also said telcos will have to provide services to all subscribers availing the same tariff plan in a non-discriminatory manner.

“Since we have found that there was lack of required transparency in arriving at the concept of SMP, non-predation and average variable cost, it is not necessary to discuss other issues raised by the appellants and noted earlier,” the order said.

Analysts say Jio is unlikely to resort to aggressive pricing now as it has a sizeable base. “Even if the details of offers and discounts were to be disclosed now, it would not make much of a difference as Jio is unlikely to come up with aggressive plans. Their plans are already quite simple and few in number,” an analyst said.

The TDSAT order said that since the concept of predation under competition laws requires consideration of many issues based on enquiry report and evidence, it would not be proper to adopt a definition which provides “artificial protection to a telecom service provider who may have the capability and intent to destabilise the sector through predatory pricing before it attains the defined status of SMP”. It said powers and jurisdiction of a statutory authority like the Competition Commission should not be blocked or abridged by issuing order or directions like those impugned which do not have the flavour of a subordinate legislation such as regulations.

Telecom operators industry body COAI has indicated that the regulation favoured Jio, and that the order has distorted the market, placing all other operators at a "serious disadvantage".

Both Trai and Jio had rejected the allegation.