Post the launch of Reliance Jio’s services in September 2016, the incumbent telecom operators had approached the Telecom Regulatory Authority of India (TRAI), accusing the new operator of practising predatory pricing through its “welcome offer” of free voice and data for three months, which was extended further for three months. While TRAI maintained that such plans were not in violation of the existing norms, it issued a consultation paper on Regulatory Principles of Tariff Assessment in February 2017 seeking the views of the industry on the matter.
A year since, TRAI’s stance remains largely unchanged, much to the disappointment of the incumbents. TRAI’s recently released Telecommunication Tariff (Sixty-third amendment) Order, 2018 states that no restrictions need to be imposed on the number of promotional offers that can be launched (whether simultaneously or after a time lag) in a licensed service area. The new rules also state that TRAI will impose a financial disincentive of up to Rs 5 million per circle on operators if their service rates are found to be predatory in nature.
TRAI has also changed the parameters for identifying significant market power (SMP) and has stated that an operator with more than 30 per cent market share, in terms of either subscriber base or gross revenue, cannot indulge in predatory pricing. This rule favours newer operators. For instance, Bharti Airtel or the Vodafone-Idea merged entity will not be able to offer such tariffs as offered by Jio since their subscriber and revenue market shares are higher than the prescribed predatory pricing threshold in most circles. Idea had earlier requested that the predatory pricing threshold be increased to 50 per cent.
Finally, TRAI has stated that predatory pricing would be determined based on an operator’s average variable cost, which, according to several industry experts, may be abused through the cross-subsidisation route.
The order has serious repercussions for the industry. With no restriction on promotional offers, the order, in a way, gives a clean chit to Reliance Jio while offering no measures to protect the incumbents. In effect, this means that the incumbents will have to wait much longer for pricing power to return to them.
