The Indian Telecom sector (‘Sector’) is the world’s second largest telecommunications market, both in terms of subscriber base (1.16 billion) and in terms of total internet users (743.19 million). Recently, on 22 January 2021, the Competition Commission of India (‘CCI’) released its key findings and observations from a study exploring the evolution of the sector and the present regulatory challenges relating to the sector. Through the study, the CCI assessed the market dynamics within the sector and highlighted developments in the sector which could lead to competition concerns in the present and foreseeable future. Further, the report assessed the shift in competition strategies by market participants, including the trend of cooperation between telecom services and related industries such as over-the-top (‘OTT’) services, network tower companies and infrastructure providers. It is interesting to note that the report does not present any definitive views of the CCI in relation to the competition issues highlighted in the Sector. The report largely summarises views presented by other experts while giving little indication of the CCI’s position on the issues.

The study highlighted that the sector witnessed a paradigm shift in 2016 as:

• The Indian Government approved ‘spectrum liberalisation’, which enabled operators to efficiently allocate spectrum bands across 2G, 3G, and 4G services. Liberalisation of the sector meant that allocation of telecom spectrum was bundled with the license, which acted as an entry barrier to the sector.
• Reliance Jio Infocomm Ltd. (‘Jio’) entered the market and immediately brought down data prices from INR 180 per Giga Byte(‘GB’) in September 2016 to INR 6.98 per GB by 2019. This adversely impacted the competitive position of incumbent operators as the ‘tariff war’ waged by Jio led to multiple market exits.
• The total number of mobile service providers has reduced from 13 in 1991 to just 8 in 2019. This includes a merger of two major service providers, Vodafone India Ltd. (‘Vodafone’) and Idea Cellular Ltd. (‘Idea’) into Vodafone-Idea Ltd. (‘VIL’) on account various factors such as (i) the AGR dues imposed by the Supreme Court of India (‘SC’), (ii) heavy losses suffered due to the ‘tariff war’ initiated by Jio, and (iii) the increasing costs of technology upgradation.

With respect to the recent trends and practices within the market, CCI observed that the prevailing market structure validates the rule of three, which predicts that mature markets normally support three main competitors. As on 22 January 2021, CCI observed that Jio, Airtel, and VIL control almost 88.4% of the market and all other players are limited to the fringes.

The report discusses a shift to non-price based competition from price based competition in the Sector. While consumers remain price sensitive, factors such as quality of service, data speed and bundled service majorly govern consumer choice. This involved a change in the attitude of operators viz Over-the-Top (‘OTT’) services. Initially, OTT services had created revenue pressure upon operators by substituting traditional SMS and voice services. However, CCI noted that in order to increase their value to consumers, operators have started bundling in OTT services to push for increased data usage by consumers. This marks a shift in the focus of operators from providing voice and SMS services to providing data services. This model also stands to benefit OTT services which are able to access a large user base.

In its key findings, CCI categorised the sector as a two-sided market that provides a platform for content providers and subscribers to connect. In recent cases pertaining to the digital markets, CCI has noted that two-sided markets pose a challenge for competition regulators as they do not fit within the existing understanding of what a traditional market should be.

Further, CCI noted that the relationship between operators and OTT services could pose competition risks such as:

• Integration between telecom operators and content providers, e-commerce platforms, digital payment platforms and other cloud-based technology solutions, which could lead to strategic bundling of services. This could result in a scenario where certain players within the sector could obtain a dominant position purely based on a ‘lock-in’ effect caused by network effects. CCI is concerned that such market power could be leveraged in contravention of Section 4 to manipulate other connected markets.
• Anti-competitive agreements between Content Delivery Networks (‘CDN’), Internet Service Providers (‘ISP’), Telecom Service Providers (‘TSP’), and internet companies, which could impact net neutrality and lead to misuse / manipulation of consumer data. This could result in possible contraventions of Section 3 where (a) products and services are tied in / bundled together, (b) CDN’s, ISPs and TSP’ enter into exclusivity arrangements, and (c) hub and spokes cartels could emerge with data usage set to grow even as the internet traffic is controlled by a limited number of players.
• On account of the ongoing financial distress that the sector faces, there are only three main companies that still persist, and the exit of even one of the three companies would result in a virtual duopoly that would certainly be more detrimental than beneficial to competition and consumers.

The report notes that the sector as it exists today is operating under some distress as high costs of spectrum acquisition and cheap mobile internet data plans (which are purportedly the cheapest in the world) have increased the industry’s debt burden even as the average revenue of the industry has decreased from 5.49% in 2012-2013 to 2.51% in 2015-2016 which further declined to -2.82% in 2018-2019. In its findings, CCI also offered solutions for the problems that the sector faces, such as:

• A new differential licensing system as opposed to the current unified licensing system that does not segregate infrastructure, network, and service layers, except for limited unbundling of the infrastructure layer; consequently, forcing licensees to establish and maintain the network, provide services to customers, and manage traffic, all at the same time,
• Sharing of infrastructure between participants to lower the cost of investments in the lead up to introduction of 5G, which could include inter alia providing public wi-fi services,
• Forming a common regulatory framework for OTT service providers and TSPs to nurture the burgeoning relationship between the two in the interest of innovation and competition, and
• Establishing an effective regulatory mechanism for upholding data privacy under the envisaged bills for protection of personal and non-personal data.

As things stand, specially in the post Covid-19 era, the dependency on this sector for businesses, personal connectivity, education, and entertainment has increased. As such, while CCI has highlighted certain competition risks pertaining to the new trends that have emerged within the Sector, it is imperative that it proceeds with restraint to avoid over-regulating a sector which relies so heavily on innovation to maintain strong competition between its three major operators. Recent investments in Jio and the rights issued by Airtel and VIL, reflect long-term intent, which is a positive signal for the sector which is already gearing up for the next chapter with the launch of 5G technology in the near future.

[The authors are Joint Partner and Associate, respectively, in Competition law team at Lakshmikumaran & Sridharan Attorneys, New Delhi]