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India: Reliance JIO vis-à-vis Predatory Pricing

October 6, 2016

On December 27, 2015, the eve of the 83rd birth anniversary of Late Dhirubhai Ambani, the founder of Reliance Industries, Jio services were beta-launched to Jio’s partners and employees. The launch was witnessed by 35,000 employees and their families, with 80,000 more watching the live streaming of the proceedings across over 1,000 centers. After a successful Beta-run, the services were launched commercially throughout the country on September 5, 2016.

Reliance JIO Infocom, is a subsidiary of Reliance Industries limited, and in order to attract digital audience in India has introduced its 4G network services and other related telecom services at exorbitantly low prices. The introduction of telecom services at low prices can be actuated with Reliance’s introduction of mobile phones at around INR 500 (less than USD 9 per phone) in early 2000 which brought about a revolution in the country.

Impact

It is anticipated that with the launch of Jio, the major players in the Indian industry, namely Bharti Airtel, Vodafone India and Idea Cellular are likely to be effected. BNP Paribas, the French multi-national bank and financial services company, claims, that the entrance of Jio will expedite the exit of weaker operators who make roughly 25% of the revenue for the industry[1]. Giving a tough fight, Bharat Sanchar Nigam Limited (BSNL), the Indian State owned Telecommunications Company, believes itself to be in a position to give competition for such low tariffs for broadband services.

Jio being a new player has already created a skirmish amongst the existing service providers, pursuant to which Cellular Operators Association of India (COAI) have asked Department of Telecommunication (DoT) to stop Jio’s entry. COAI said that all Reliance Jio’s connections should be stopped because under the guise of a test run, Jio is offering full-fledged services. In return to it, Jio replied by calling these charges “malicious, unfounded, ill-informed, and frivolous” but the final statement from the DoT is pending.

JIO and Predatory Pricing

Predatory pricing is the act by which a company having a dominant position in the market, reduces prices of a good or service in an industry so that the smaller players of that industry cannot sustain their business in the long run and are forced to exit.

Section 4(2) of The Competition Act, 2002 reads as following:“predatory price” means the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.

To establish the allegations of predatory pricing, first, one has to establish whether the company holds a dominant position in the industry. This position means that the company has the power to operate independently of the market status and because of its strength can steer the market in its favor. Solely on the basis that a company is a dominant player it cannot be accused of predatory pricing, but, it has to be shown that they abused this position in order to make the market favorable to them.

In Re: Johnson And Johnson Ltd[2].Justice S Manchanda said that “the essence of predatory pricing is pricing below one’s cost with a view to eliminating a rival.” In MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd., DotEx International Ltd. and Omnesys Technologies Pvt. Ltd[3], the CCI defined predatory pricing as the conduct, “where a dominant undertaking incurs losses or foregoes profits in the short term, with the aim of foreclosing its competitors.”

Take Away

According to Reliance, sole purpose of the JIO scheme is to make India one of the most internet integrated country by providing internet usage to the mass. However, whether the actions of Reliance Jio amounts to predatory pricing can be determined only if it is proved that Reliance Jio is a dominant player in the market and they are abusing their dominant position to force the small players out of the market.

We shall be watching this space and keep our readers updated in case this develops further.

[1]http://economictimes.indiatimes.com/news/company/corporate-trends/reliance-jios-free-offers-in-trial-phase-may-hit-data-growth-of-others-analysts/articleshow/53937067.cms

[2] (1988) 64 Comp Cas 394 NULL.

[3] 2011 Comp LR 129 (CCI)

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