This article is written by Sahil Kumar Purvey, from HNLU, Raipur.
On 21st April 2019, Reliance Industries Limited (“RIL”) announced that its wholly-owned subsidiary Jio Platform Limited (“JPL”) will offload its 9.99% equity share to technology giant Facebook Inc. in consideration of ₹ 43,574 Crores. Facebook’s investment in the JPL became the world’s largest investment by a technology company for a minority stake and the largest FDI in the Indian technology sector. JPL is the parent company of telecom behemoth Reliance Jio Infocomm (“RJio”), JioMart, and various digital platforms in different sectors like JioSaavn, JioCinema, JioCoin, and JioUniversity. Along with the Jio-Facebook deal, a concurrent commercial pact was signed between JPL, RIL’s retail unit i.e. Reliance Retail, and Facebook’s wholly-owned subsidiary WhatsApp to cross-leverage e-commerce platforms. RJio with more than 388 million subscribers expands its user base through the Jio-Facebook deal which brings 328 million Facebook and 400 million of WhatsApp monthly users in India to RJio. RIL through this deal gains a larger user base and control over data, which enables them to monopolize mammoth markets like telecom and e-commerce sectors, and also raises the concern of data privacy. This article would analyze how RJio irrespective of being a new entrant in the sector has changed the dynamics of competitiveness in the telecom sector since its arrival and made the Competition Commission of India (“CCI”) feeble to enforce the competition law in the sector and also analyze how JioMart, a new entrant in the e-commerce sector, might outrage the competitiveness in the sector on the same pattern as Rjio has done to the telecom sector. While dealing with competitiveness in these two sectors, the article would also deal with the issue of data privacy.
In the preceding decade, the Indian telecom sector has emerged at a swift pace and has become the world’s second-largest telecom sector with a subscriber base of 1.195 billion in September 2019. In 2018, the telecom sector had contributed 6.5% to Indian GDP in comparison to 4.6% of GDP globally and after the introduction of 5G in the domestic market, it is expected that the total GDP contribution will rise to 8.2% by the end of 2020. Such a progressing sector raises the priority regarding the competitiveness within the sector which has been maintained since the enactment of competition Act, 2002. However, over the past few years, the arrival of Reliance Jio within the telecom sector has made the competition steeper.
On its entry into the market, Reliance Jio had offered ‘Jio Welcome Offer’, under which new subscribers got unlimited data, voice calls, and a full bouquet of applications without any consideration within the time-frame commencing on 5 September 2016 until 31 December 2016. Another offer called the ‘Happy New Year’ offer was launched, which extended the free of the cost benefit of unlimited data and voice calls till 31 March 2017. After that, they started providing data and unlimited voice calls at a comparatively cheaper price than other market players.
Bharti Airtel filed a complaint under section 19(1) of the Competition Act, 2002 (“The Act”) to the CCI, alleging that the Reliance Jio through ‘Jio Welcome Offer’ & ‘Happy New Year’ as mentioned above, has engaged in predatory pricing & thus violated section 4(2)(a)(ii) of the Act. Section 4 of the Act controls abuse of dominant position by an enterprise, which suggests the pre-condition for violation of this section is that enterprise should be in a dominant position within that relevant market. In this case, the CCI determined the ‘relevant market’ to be the marketplace for ‘provision of wireless telecommunication services to end-users in each of the 22 circles in India’.
The CCI had delivered its decision in the case of Bharti Airtel Limited vs. Reliance Jio Limited on 9 June 2017, and held that Reliance Jio wasn’t in a dominant position within the relevant market as CCI found that Reliance Jio had less than 7% of market share in each of the 22 telecom circles in India, which was much less than other key market players with similar financial and technical capabilities. This shows that consumers had sufficient choices and not dependent only on service provided by Reliance Jio. Without being in a dominant position in the relevant market, the question of abusing the dominant position through predatory pricing in that relevant market does not arise.
By November 2019, RJio became the biggest Indian telecom operator, both in terms of subscribers and market shares. Under Section 19 (4) of the Act the market share of the enterprise is one factor to be taken to determine its dominance but merely having the highest market share can’t make the enterprise dominant. That’s why RJio can’t be considered dominant even presently as other market players substantially hold the market share and give sufficient options to customers. RJio has also hiked its service charges and pricing it in an exceedingly competitive manner.
Section 27 of the Act penalized the abuse of its position by the dominant player, but even without being in a dominant position RJio’s act of deep discounting hampered the competitiveness in the telecom sector and made other market players scale back their service charges to compete with it. The Vodafone-Idea merger is another upshot of it, which ultimately made three entities i.e. Vodafone-Idea, RJio & Bharti Airtel to hold an almost entire share in the private telecom sector and caused more than 75,000 job losses. RJio put the telecom industry in financial crisis and the aggregate debt of industry has been raised from ₹ 2.70 lakh crore in 2014-15 to ₹ 7.64 lakh crore in 2018-19.
On the one hand, RJio has been escaping the legal penalty because of not being a dominant entity, and on the other hand, the Supreme Court of India in the case of CCI vs. Bharti Airtel Limited restricted the absolute power of CCI and held that the Telecom Regulatory Authority of India (“TRAI”) being the regulator of the telecom sector has jurisdiction on all the matters related to the telecom sector and once proceedings under the TRAI Act, 1997 is disposed of, only then CCI could exercise jurisdiction in the matter. In this case, the court tried to harmonize the regulatory powers of both the TRAI & the CCI. Section 21 mentions that the Act takes into consideration the role of other statutory authorities, whereas Section 60 states that provisions of the Act shall have the overriding effect, notwithstanding any inconsistency with other statutes. The Apex Court interpreted Section 21 & 60 of the Act harmoniously and held that, TRAI has the initial jurisdiction and once proceedings under it are disposed of, only then CCI would have jurisdiction under section 26 of the Act to commence an investigation. However, the judgment has been appreciated, because it made the scenario clear, but somewhere it made a blow on the absolute power of CCI to commence an investigation in a prima facie case to maintain the competitiveness in the sector.
Jio-Facebook deal is another brick in the wall to monopolize the telecom sector. RJio could convert customers of other networks to its own with the access of big data available with Facebook and WhatsApp. The deal also strengthens RJio’s balance sheet and reduces its dependence on initial public offers for future cash infusions for buying the 5G airwaves as 5G is expected to arrive in India by the end of 2020. TRAI has recommended a reserve price of Rs 492 crore per MHz, and every telecom operator needs to pay around Rs 50,000 crore for 100 MHz pan-India spectrum that is the minimum spectrum required to deliver 5G services as per International Telecommunication Union. RJio being more financially capable would have the first-mover advantage over its rivals during the auction of 5G spectrums as other key players already stated their financial incapability to buy 5G spectrum in the auction.
In December 2019, JPL in a joint venture with Reliance Retail launched JioMart and entered into the e-commerce retail marketplace. E-Commerce is also known as electronic commerce or internet commerce provides a platform where goods or services are sold and bought with the use of internet and electronic devices. Some e-commerce entities act both as a marketplace (Marketplace model of e-commerce) and a competitor on that platform (Inventory based model of e-commerce). JioMart is a Marketplace model of e-commerce that connects local stores with customers. JioMart has been offering free home delivery, No minimum order value, Discount of ₹ 3,000 on pre-registration, No question asked return policy and binary option to buy online or offline since its inauguration to lure customers.
The Jio-Facebook deal deepens JPLs pocket and enables it to facilitate such offers and involves predatory pricing to sweep out other competitors from the market as we witnessed in RJio case, that an enterprise could outrage the competitiveness in the sector even before being in the dominant position. JioMart has started functioning through WhatsApp and the deal seems to strengthen the plan of expanding JioMart nationwide as apprehended from the concurrent commercial pact to cross-leverage e-commerce platforms i.e. JioMart and WhatsApp. The deal also expands the network effect of JPL and avail it unlimited data sources which make them exceptional players to utilize the market opportunities and draft e-Commerce Policy 2019 also recognized the same and recommended that network effect of fusion must be looked into mergers and acquisition cases. JioMart being the marketplace model of e-commerce also got benefit from new changes in Foreign Direct Investment (FDI) policy in e-commerce, in comparison to other entities as the policy allows FDI only to Marketplace model of e-commerce.
On 8th January 2020, the CCI submitted a report on the market study of e-commerce and identified various competitive issues such as Platform Neutrality, Platform to Business Unfair Contract Terms, Platform Price Parity Clause, Exclusive Agreements, and Deep Discounting, which are pertinent to this deal. RIL plans to sell groceries through the local stores on e-commerce platforms under its private labels such as Good Life, Best Farms, Kaffe, Enzo, and Expelz, which would compromise platform neutrality due to preferential treatment to retailers selling RIL’s goods. To sustain customers JioMart could indulge in deep discounting, which would make retailers sign exclusive and unfair agreements with it. The deal also enables JioMart exclusive access to unparalleled transaction data to control search rankings and user reviews which make them determine market ramifications, for instance sales, prices, and client traffic as opposed to the competitive excellence of the items.
The Jio-Facebook deal raises the concern regarding data privacy of RJio Customers as Facebook earlier had harvested customer’s data targeted advertising, specifically political advertising which we witnessed in the case of the pro-Brexit Leave EU campaign and Donald Trump’s 2016 presidential campaign. Multiple scandals tarnished the image of Facebook, and in 2018 Facebook announced to constitute a 20 member independent oversight body to review the content to be allowed on Facebook but the oversight body is yet to be functioning.
The Supreme Court of India in the “Aadhaar Case” held the ‘right to privacy’ as a fundamental right implied in Article 21 of the Indian constitution. However, privacy rights are not absolute and an individual’s privacy could be countermanded by competing for state and individual’s interests under the guidance of certain tests determined on a case to case basis which should be just, fair and reasonable. What standard of the test would be followed by the oversight body is unanswered as of now. Notwithstanding the Aadhaar Judgment, the draft e-Commerce Policy considers data as public goods. Similarly, the UNCTAD’s Digital Economy Report 2019 noted the monetization of large-scale digital data is of utmost importance for developing countries. This conflicting approach would enable JioMart to engage in ‘data masking’, i.e., denying to share customer’s data available to it on the pretext of privacy but using that data to launch their products on e-commerce platforms.
Conclusion and Suggestions
Indian market already observed that an entity not being dominant but has substantial market power can scandalize the competitiveness in the sector by its unilateral action and the same need to be penalized under Indian Competition law as competition laws of various countries like Australia and Canada have adopted this view. CCI should also initiate a full-fledged study on the telecom sector to decide the road ahead to maintain competitiveness in the sector as it has done on e-commerce. Although, CCI had planned to conduct a study about the various competition aspects in the Indian telecom sector which was scheduled to start in November 2019, but has not been started yet. After the Jio-Facebook deal, JPL has further offloaded its 2.32% of equity share to Vista Equity Partners in consideration of ₹ 11,367 crores and may offload the other 8% of equity share to US private equity firm Silver Lake. As the Jio-Facebook deal is subject to get approval from CCI, CCI should monitor all the cash inflows in JPL synchronously. CCIs difficulties to enforce competition law have escalated as proximity increased between market power and control over data and it necessitates that the definition of ‘price’ under Section 2(o) should be interpreted broadly to include non-monetary considerations as data in the present deal. Similarly, ‘network effects’ and ‘control over data’ should be regarded as ‘resources of an entity’ to determine its dominance under Section 19(4)(b) of the Act.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: