TRAI’s views on Predatory Pricing

TRAI in its recent Telecom Tariff Order (TTO) dated 16.2.2018 has sought to lay the grounds for ex ante determination of dominance and predatory pricing and in the process, linked it to the concept of Significant Market Power (SMP). I had  in my earlier blog post titled ‘CCI, TRAI and Regulation of Predatory Pricing‘  written that, the concepts of Significant Market Power in telecom regulation mostly apply to ex ante regulation of bottleneck facilities such as EU’s erstwhile regulation of leased lines. This concept based on percentage of ownership of resources is simplistic and too crude to handle a complex issue such as predatory conduct / abuse of dominance.

It is generally understood that given the existence of a Competition Regulator namely, Competition Commission of India whose jurisdiction includes telecommunications, TRAI’s role is ex ante facilitation of competition; CCI’s role is ex ante as far as merger control/review is concerned but ex post as  regards anti-trust matters such as abuse of dominance including predatory pricing.

However, though in its consultation paper TRAI had quoted from EU law to state significantly that, market definitions for the ex ante regulation of the electronics communication sector would differ from markets defined in individual competition law cases as the purpose of the former is an overall assessment of the structure and functioning of the market under examination to determine whether or not to impose ex ante regulation, the Telecom Regulator has not perhaps appreciated the EU stance/international norm properly. 

……..Similarly, the designation of an undertaking as having significant market power in a market identified for the purpose of ex ante regulation does not automatically imply that this undertaking is also dominant for the purpose of Article 102 of the Treaty or for the purpose of application of Council Regulation 139/2004 or similar national provisions. Moreover, a significant market power (SMP) designation has no direct bearing on whether that undertaking has also abused a dominant position under Article 102 of the Treaty. It merely implies that, within the scope of Article 14 of the Directive 2002/21/EC, from a structural perspective, and in the short to medium term, in the relevant market identified the operator has and will have, sufficient market power to behave to an appreciable extent independently of its competitors, customers, and ultimately consumers……………………………………………..In this respect, ex ante obligations imposed by NRAs on undertakings designated as having significant market power aim to remedy market failures identified and fulfil the specific objectives set out in the Framework. On the other hand EU competition law instruments serve to address and remove concerns in relation to illegal agreements, concerted practices or unilateral abusive behaviour which restrict or distort competition in the relevant market. This paper also states that, …The SMP Guidelines do not in any way restrict the rights conferred by EU law on individuals or undertakings. They are without prejudice to the application of EU law in general, and of competition rules more specifically, and to their interpretation by the Court of Justice of the European Union. The SMP Guidelines do not prejudice any action the Commission may take or any guidance the Commission may issue in the future with regard to the application of EU competition law.

This key aspect is ignored by TRAI when equating a primarily structural analysis in terms of ex ante definition of Significant Market Power ( to decide whether to impose tariff restrictions or open access requirements etc.) with a different concept of abuse of dominance (which is essentially an anti-competitive  ‘conduct’) as a precondition to determine predatory behaviour which is internationally the subject matter of competition law and involves mostly ex post analysis by the competition regulator. There was really no need for TRAI to foray into the domain of  Competition Commission of India which is well equipped to deal with cases of predatory pricing. Certainly TRAI would not be in a better position than CCI to determine intent which is a complicated exercise.

Another  interesting aspect of this TTO is that of TRAI  dismissing without adequate explanation the other criteria of arriving at determination of SMP in a market,  namely, switching capacity and traffic volume. Thus if a Service Provider has the lion’s share of switching capacity/infrastructure  and then proceeds to use predatory pricing to drive out its competitors and acquire their customers, this would not amount to predatory behaviour based on  ex ante measurement of dominance in terms of market share by subscribers/turnover.