Competition Law and the Telecom Sector

By Sarthak Behera, NUALS

Editor’s Note: 

INTRODUCTION

The growth and development of the telecommunication industry in India has been tremendous. With new and cheaper technologies being adopted almost every year, in this industry India is on its path of becoming an electronics manufacturing hub of the world. With an addition of 18 million subscribers every month and contributing to nearly 2% of the Indian GDP, the Indian telecom industry is considered to be the largest telecom markets in the world. Driven by wireless communication, the telecommunications industry is recognized as a key to the rapid growth and modernization of the economy and an important tool for socio-economic development for India.

Minister of State for Communications and IT, Mr. Milind Deora, in a written reply to the Rajya Sabha on November 23, 2012 had stated that, “communications industry has been growing at an annual average growth rate of 31.07 percent during the last three years with the total number of telephone connections rising to 95.14 crores at the end of March 31, 2012. The total number of telephone connections has increased to 951.35 million as on March 31, 2012, from 429.73 million as on March 31, 2009, the industry grew at 44.57 percent in 2010, 36.22 percent in 2011 and 12.40 percent in 2012. The annual average growth rate during the last three years is 31.07 percent.”

This project is directed to study the Telecom sector in India. With a brief overview of the Telecommunications Industry in India, this project looks into the market structure, and the prominent market players and the competition practices, among them that is prevalent in India.  This project also provides a brief examination of the impact of Policy and Regulatory Decisions on the growth of the Telecommunication industry. This project also throws light upon the various competition issues among the players. Due to the presence of a strong regulatory body, the conflict that may arise between such authorities and the Competition Commission of India has also been studied. The recent mergers and acquisitions that this industry has seen has also been looked into. Due to the vastness of the amount of data available, it has been challenging to compile the relevant data and process the available information, and represent it towards the completion of the project.

OVERVIEW OF THE TELECOMMUNICATION INDUSTRY IN INDIA

The Indian telecommunications sector is the second largest wireless network in the world after China. From a situation where this sector was dominated by the Department of Telecommunications, the sole government operator, in the early 1990s, now there are a number of private operators elbow to elbow in mobile telephony, international long distance, internet service provision and other segments of telecommunications. The pace of growth and achievements in terms of statistics have been quite spectacular. From a tele-density[i] of 0.22 at the time of independence, India achieved a very modest teledensity of 1.94 by 1998, the decade of introduction of liberalization. Since then India has achieved a teledensity of 18.74 overall and a rural teledensity of 6 by April 2007.

Some of the metros have achieved a teledensity over 50. According to the Department of Telecommunications Annual Report 2010-11, Indian telecom network has 787.29 million connections as on 31st December 2010 with 752.20 million wireless connections. Wireless telephones are increasing at a faster rate. The share of wireless telephones as on 31st December 2010 was 95.54% of the total phones. There are now 212 million telephone subscribers with 41 million fixed-access and 171 million mobile subscribers. Over 6 million subscribers have been added per month for the last six months and India has the fourth largest network after China, USA, and Russia. 

There are currently 8.5 million internet subscribers with 2.43 million broadband subscribers. The sector has attracted a total of $ 3.89 billion foreign investment in the period April 1991 till March 2007. Mobile call prices are reputed to be among the lowest in the world providing support to the benefits of competition. Over the last decade and particularly over the last five years, India has registered an impressive growth in this sector with a total of 846.32 Million Telecom subscribers, comprising of 811.59 Mobile subscribers & 34.73 wire line subscribers. The Indian Tele-density now stands at 70.89%[ii].

The Telecommunications Industry in India used to be a monopoly regime up until it underwent massive structural reform with the establishment of an independent regulatory mechanism. The reform process began in the 1980s with the entry of private players in 1984, in the manufacturing of customer premise equipment and corporatization of domestic telecom operations in two metros: Delhi and Mumbai; and the establishment of a corporation for international services in 1986 and of the Telecom Commission with full government powers in 1989[iii]. The policy initiatives taken during the 1990s constituted the transition from monopoly to competition.

During this period, beginning with the deregulation of the sub-sector of value-added services in July, 1992, followed by the issuance of two major policy instruments: the National Telecom Policy, 1994 (NTP94) and the New Telecom Policy 1999 (NTP99), with these initiatives, conversion from a monopoly to competition was successfully accomplished.  With the process of liberalization Telecom manufacturing was delicensed in 1991 and value-added services were declared open to the private structure in 1992 following which the radio paging, cellular mobile, and other value-added services were gradually opened to the private sector.

The entry of private service providers brought with it the inevitable need for government regulation. With effect from 20th February 1997 by an act of Parliament called the Telecom Regulatory Authority of India Act, 1997, the Telecom Regulatory Authority of India (TRAI) was established, to regulate telecom services, including fixation of tariffs for telecom services which were earlier vested in the central government. By an ordinance, effective from 24th January 2000 the TRAI act was amended to establish a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI.

TELECOM REGULATORY FRAMEWORK

The key regulatory bodies of the telecom industry are the Department of Telecom which is the licensor, TRAI, which functions as the regulator and TDSAT which is the judiciary body. The Department of Telecom is under the purview of the Ministry of Communications and Information Technology. The Department of Telecom formulates developmental policies for the accelerated growth of the telecommunication services. The Department is responsible granting licenses for various telecom services like Unified Access Service Internet and VSAT services, managing radio frequency in close coordination with the international bodies and enforcing wireless regulatory measures by monitoring the wireless transmission of all users in the country. The Department of Telecom has got five major divisions to carry out these tasks:

  1. Wireless Planning Coordination Wing (WPC) – is the National Radio Regulatory Authority responsible for Frequency Spectrum Management, including licensing and caters for the needs of all wireless users in the country. It exercises the statutory functions of the Central Government and issues licenses to establish, maintain and operate wireless stations. WPC is divided into major sections like Licensing and Regulation, New Technology Group and Standing Advisory Committee on Radio Frequency Allocation (SACFA). 
  2. Telecom Engineering Center (TEC)- a technical body responsible for formulating specification of common standards with regard to Telecom network equipment, services, and interoperability,  issuing interface approvals, and providing technical support to DOT, TRAI, and TDSAT. 
  3. Center for Development of Telematics (C-DoT) – an R&D unit under the Department of Telecom. 
  4. Public Sector Undertakings- The DoT has the public sector undertakings under its fold like Bharat Sanchar Nigam Limited (BSNL), Mahanagar Telephone Nigam Limited (MTNL), Indian Telephone Industries (ITI), and Telecommunications Consultants India Limited (TCIL). 
  5. Telecom Enforcement Resource and Monitoring Cells (TERM)- known earlier as Vigilance Telecom Monitoring Cells (VTM), TERM monitors and controls illegal and clandestine telecom operations in the country and analysis of call and subscription data, monitoring of network parameters, customer document verification and grievance redressal of the subscribers.

The Telecom Commission was set up by the Government of India in 1989 with administrative and financial powers of the Government of India to deal with various aspects of Telecommunications.  The Telecom Commission is responsible for policy formulation, licensing, wireless spectrum management, administrative monitoring of PSUs, research and development and standardization.

Telecom Regulatory Authority of India (TRAI) set up in 1997 by the government of India as an independent regulator of the business of telecommunications in the country; it is mandated to provide an effective regulatory framework and adequate safeguards to ensure fair competition and protection of consumer interests. The mission of TRAI is to create and nurture such conditions that encourage the growth of the telecommunications sector in India so that the country can play an important role in the world telecommunications society. The main objective of TRAI is to form a transparent and fair policy environment that encourages fair competition. TRAI’s powers and functions include settlement of disputes that arise between service providers, maintaining a register of interconnect agreements, and give advice to the government at the center on subjects that are connected with the development of the telecommunication technology. TRAI issues large number of directives, regulations, and orders that deal with various subjects such as interconnection, service quality, and tariff.

Telecom Disputes Settlement & Appellate Tribunal (TDSAT) set up in May 2000 by the Governmcopper ent of India adjudicates over disputes that arise in the telecommunication sector with the view to protect the interest of the consumers and service providers of the telecommunication sector and also to encourage and ensure the growth of the telecommunication sector. The chairperson of TDSAT is appointed from the ranks of Chief Justice of a High Court or a Supreme Court judge and holds office for a period of 3 years. The TDSAT can adjudicate any disputes that arise between a group of consumers and service providers, a licensee and a licensor, and also between two or more than the service providers. The power and function of Telecom Disputes Settlement & Appellate Tribunal include that it can hear the appeal and also dispose of appeals that are against any order, direction, or decision of the TRAI.

IMPACT OF REGULATION ON THE TELECOM INDUSTRY

The regulatory framework of the telecom industry as independent regulator has provided immense strength to this industry by striving to stay committed to its role in taking various initiatives that have inspired confidence amongst the consumers and service providers alike. It may well be premature to assess the full impact of the regulator and the dispute settlement entity on telecom growth as they have existed for less than ten years, none the less there has been wide recognition that their contribution in the post-liberalization era has equipped the telecom sector to cope with the emerging challenges such as tariff setting, quality of service, protection of consumers’ interests, licensing, expansion of telecom services in rural areas, and spectrum management. The regulator TRAI in its efforts of keeping a level playing field and fostering competition, as well as raising the level of customer satisfaction, has dealt with such issues through regulations and by involving stakeholders in the process.

The affordable tariff was recognized as an important medium for the growth of the telecom sector and instrument for promoting competition in the sector. Due to the intensive competition in this sector, it has allowed flexibility to the service providers to offer any tariff, subject to certain regulatory principles including Interconnect Usage Charges (IUC) compliance. To provide transparency to various telecom services the Telecommunication Tariff Order (TTO) was set up. The creation of the Telecommunication Tariff Order conveyed to potential investors the direction of telecom pricing reform, which were essential to balance the tariffs to align with costs and enhanced flexibility to service providers for price setting, and more choice to customers.

One example of the impact of TTO on the telecom market would be determining the competitive price for cable-based international private leased circuits (IPLC) services, which were then available to user industries at the same price. The IPLC services offer global connectivity through submarine cable and serve as a crucial input for the provision of broadband and internet services, international long distance voice telephony and for a number of key industries, such as information technology and information-technology-enabled services. Other initiatives taken by the Regulator in the area of tariff includes the introduction of the “calling party pays” (CPP) regime and cost-based IUC. These measures positively affected the competitiveness of the cellular mobile telephone services market in India and resulted in significant reduction in international, and domestic long-distance call charges, the rationalization of roaming charges, and the reduction in tariffs for mobile telephony[iv].

The regulator has also issued regulations on Quality of Service (QOS) provided by various service providers with separate parameters provided for wireline and wireless services. The TRAI has been reviewing regularly the status of quality of service provided by operators. Under a new set of regulations on QOS issued in July 2005, the TRAI has divided the basic and cellular QOS parameters into four categories, namely: 1) network performance; 2) customer helplines; 3) billing complaints; and 4) customer perception regarding services. Analysis of performance by service providers in quality of service parameters shows that mobile service operators meet the QOS benchmarks in comparison with wireline service.

TRAI has also taken several steps to protect the interests of consumers like obligating all service providers to furnish full details of the tariff plan they offer to customers at the time of their enrolment, mandating that service providers regularly reflect credit limits set for a post-paid customer in their monthly bill on a regular basis, requiring service providers to display details of their tariff plans for the information of consumers (service providers are required to display the international private leased-line tariff and domestic leased-line tariff on their websites) and, prescribing the issuance of docket numbers for registering complaints made to call centers and also for termination of service.

Another important impact of regulatory action of the Telecomm industry is Licensing of Services. The TRAI Act confers on the regulator power to recommend, suo motu or at the request of the licensor, the need, and timing for introduction of a new service provider as well as the terms and conditions of the license. Since such recommendation have been so far pro-competition in nature, it has been met with a positive impact on public mobile radio trunk service (PMRTS)[v], VSAT operations[vi], the internet service provider (ISP) licensing regime[vii], Infrastructure Sharing, licensing policy for access services provisions[viii], accelerating growth of internet and broadband.

Impact of TDSAT has also been quite positive with stability in the market place by resolving sector conflicts/issues in a focused, judicious manner. With consistency in dealing with telecom issues, TDSAT has provided not only the service providers an opportunity to resolve disagreements, but also enabled the consumers as a class to get a fair deal. It also verifies various decisions of the regulator that establish the character of corporate governance in the telecom sector. TDSAT’s expansion in dealing with cases pertaining to cable and broadcasting services besides telecom services has resulted in an increase in the number of issues in front of the Tribunal. The Tribunal has already dealt with some very important issues, like jurisdiction, interpretation of licensing terms, competition, inter-carrier compensation, spectrum allocation, and consumer interests, all of which have contributed immensely to the sustainable growth of the telecom sector.

MARKET PLAYERS IN THE TELECOM SECTOR[ix]

With new players coming in the intensity of competition in this industry has increased, especially over the last 4 years. The market shares of the telecom operators of the telecom industry reflect the fragmented nature of the industry with as many as 15 players. As of 30th April 2012, Bharti Telcom led the market share with 19.94% of the share, Reliance 16.58%, Vodafone 16.41%, Idea 12.4%, BSNL 10.51%, Tata 8.77%, Aircel 6.93%, Uninor 4.85%, Sistema 1.75%, Videocon 0.67%, MTNL 0.60%, Loop 0.35%, HCL 0.16%, Etisalat 0.00%, Stel 0.00%.

Bharti is way ahead with close to 20% of the market share in India followed by Reliance who saw to battling it out with Vodafone for the second spot. Reliance currently has 154 million subscribers as compared to 152.5 million subscribers Vodafone has. Uninor one of the last entrants into the Indian Telecom Market now has over 45 million subscribers and accounts to almost 5 % of the Indian mobile market share.

For wireline segment, Public sector undertakings BSNL and MTNL have a major share of the wireline market covering more than 80% of the entire market. Although private players such as Tata Teleservices, Bharti Airtel and Reliance have registered significant growth, BSNL continues to dominate the segment in terms of wireline subscriber base.

[x]The wireless segment includes GSM and CDMA services and is much larger than the wireline segment in India. About 527.6 million GSM subscribers account for 83% of the market and 107.9 million CDMA subscribers account for the remaining 17%. Private players such as Bharti Airtel Limited, Reliance Communication, Vodafone, Tata, BSNL, Idea Cellular, and Aircel cumulatively hold a major share of the wireless market.

For broadband and internet sub-sector, high growth in broadband outreach is expected to drive the next phase of growth in the telecom industry. While broadband connections are increasing rapidly, their reach in India is still at 0.7 %, as against the worldwide outreach of 8.1 %. Key players in the segment are BSNL, MTNL, Bharti, Tata Communication, Reliance Communication, Sify Technologies, YOU Telecom, Data Infosys and Hathway Cables. Following the 3G and Broadband Wireless Access (BWA) auction, the data sector is expected to grow rapidly.

For VSAT, at present, there are eight VSAT service providers in India, including BSNL, Bharti Airtel, Hughes Communications India Ltd, HCL Comnet Ltd etc. The number of VSAT subscriber services grew by 4,311 to 128,406 for the quarter ending June 2010.

MARKET STRUCTURE AND COMPETITION IN THE TELECOM INDUSTRY

The market structure of the Telecom industry in India includes teledensity, wireless, wireline, and internet services.

Teledensity-Teledensity means number of telephones per hundred people. The current teledensity in India is 78.10. However, there is a large disparity between urban teledensity and rural teledensity. The urban teledensity stands at 169.37 whereas rural teledensity is 38.53 only. The reason for the slow growth in teledensity in the rural areas is that it is less attractive for the telecom service providers to invest. Furthermore, providing service in the remote and rural areas also requires massive investment.

Source: Department of Telecommunication, Annual Report 2011-2012

Wireless

Market share in the wireless subscription as on February, 2012

The pie chart clearly shows that currently, the private sector dominates the cellular market. However, this was not the case in the beginning. The changes in the market structure were due to the changes in telecom policy in 1999. The growth rate of number of wireless subscribers from 1996-2011 in the graph below, clearly depicts the growth in wireless subscribers after the change in policy in 1999. Currently, the three main players in the mobile services sector are Vodafone, Reliance, and Bharti.

Wireline

In the basic telecom services or wireline services the incumbent — Bharat Sanchar Nigam Limited (BSNL) has the majority share in the market. This is due to the expanse of the infrastructure available to the incumbent, and its ability to provide basic telecom services in the rural and remote areas. The private wireline service providers do not have the capital to invest in building such infrastructure and there is no profit in such capital investment as well. Therefore, private players mainly concentrate in urban areas where they can earn more revenue.

Internet Services- Market share of ISPs as on December 2011

The broadband services came into the forefront after the implementation of the Broadband Policy, 2004. It laid down that the minimum speed for a broadband connection has to be 256-kilo bits per second. This has been revised to 512-kilo bits per second under the National Telecom Policy, 2012. In India, 59.6 percent internet subscription is broadband subscription. Currently, the main technology used for broadband access is digital subscriber line (DSL). About 85.1 percent of the broadband subscriptions are via DSL technology. While the other technologies such as fiber, leased line, wireless, Ethernet, cable modem covers only 14.9 percent of the market. The main internet service provider (ISP) in the market is BSNL which has a share of 54.97 percent.

[xi]India’s teledensity has improved from under 4% in March 2001 to around 53% by the end of March 2010. Cellular telephony has emerged as the fastest growing segment in the Indian telecom industry. The mobile subscriber base (GSM and CDMA combined) has grown from under 2 m at the end FY00 to touch 584m at the end of March 2011 (average annual growth of nearly 76% during this ten year period). Tariff reduction and decline in handset costs has helped the segment to gain in scale. The cellular segment is playing an important role in the industry by making itself available in the rural and semi-urban areas where the teledensity is the lowest. The fixed line segment has actually seen a decline in the subscriber base. It has declined to 34.8 m subscribers in February 2011. The decline was mainly due to the substitution of landlines with mobile phones. As far as broadband connections are concerned As far as broadband connections (>=256 kbps) are concerned, India currently has a subscriber base of 8.8 m. It has grown at an average annual growth rate of 40% since 2008. The auction for broadband wireless license and spectrum has concluded recently. The government is expected to allocate the spectrum before the end of this year. This will further boost broadband penetration in the country.[xii]

Supply: Intense competition has resulted in prompt service to the suppliers.

Demand: Given the low tariff and environment and relatively low rural and urban penetration level, demands will continue to remain higher across all the segments.

Barriers to entry: High capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world.

Bargaining Power of Suppliers: Improved competitive scenario and commoditization of telecom services has led to reduced bargaining power for services providers.

Bargaining Power of Customers: A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers.

Competition: Competition has intensified with the entry of new cellular players in circles. Reduced tariff has hurt all the operators.

FY11 saw the continuance of strong growth for the Indian telecom market which witnessed a 45% YOY increase in its subscriber base during the 12- month period. The end of March 2011, the countries total subscriber base stood at 621m. The teledensity level stood at level by the end of the fiscal. Growth remained robust in the GSM mobile space. GSM added 87 m subscribers during the year. After a strong 50% YoY increase in subscriptions during FY09, the GSM industry recorded another good performance during FY10, growing subscriber base by 22% YoY to about 479 m. During FY10, India’s mobile subscriber base grew by 49% YoY, from 392 million to 584 million, while the fixed subscriber base declined by about 3%, from 37.9 million to about 36.9 million.

Despite market liberalization, certain characteristics of telecommunications markets have nevertheless favored the continued concentration of market power in the hands of incumbents. Some of these include: Strong network effects that reflect the desire by customers to make and receive calls from anyone (the value of any-to-any connectivity), causing customers to choose large networks over smaller networks in the absence of interconnection;

  • Large sunk costs involved in the construction of essential facilities such as local networks;
  • The long legacy of statutory public monopoly in telecommunications which has afforded the incumbent: Scale and scope economies and Benefits of established networks such wide subscriber base, deep pockets, and market experience.

COMPETITION ISSUES IN THE TELECOM SECTOR

Unbundling of copper local loop – The incumbent operators BSNL/MTNL enjoys a dominant position in the wireline segment of the telecom market with a market share of nearly 88%. The MTNL operates in Delhi & Mumbai and BSNL operates in the rest of the country. These organizations enjoy a dominant position in wireline telephony and using this infrastructure including copper local loop in acquiring a dominant position in internet service provisions especially in the broadband segment. In order to facilitate competition in this sector, it is necessary that the copper local loop being an essential facility may be unbundled for all the telecom operators on a non-discriminatory basis at fair prices for greater competition.

Access to optical fiber network: The largest optical fiber has been built by the incumbent operator BSNL who is also the long-distance operator. The private sector players such as Bharati and Reliance have also constructed optical fiber cable network connecting mainly cities and towns but their presence is very limited in the rural areas and difficult terrains. BSNL enjoys the dominant position in the market not only with respect to the number of kilometers cable laid but also its reach to various blocks, headquarters, and villages. To provide the telecom services on a competitive basis by various telecom operators access must be provided to various optical fiber networks on non-discriminatory and at fair rates to various operators for bringing the competition in various telecom products especially in the high-speed internet access and leased line segment.

Carrier Access Selection: The telecom subscriber in India does not enjoy the facility of selecting their carrier for making the long distance and international calls. Selection of the carrier of their choice at the time of making NLD/ILD calls will do away the present scenario of product tying of local access and NLD/ILD product. to bring increased competition and greater empowerment to the customers in choosing their carrier for making NLD/ILD calls will result in greater transparency and avoidance of product tying.

No provision for number portability in fixed line segment: Further, no guidelines have been issued for implementation of number portability in the fixed line segment. By providing more power to the customers in the selection of their service providers without changing the directory number will bring greater competition in the Telecom market. The number portability must be implemented on a priority basis in terms of broadband connections lower wireline connections to increase the number of wireline consumers.

Provision of Internet-based voice calls in the domestic segment: At present, the regulations do not permit IP telephony in the domestic segment though it is allowed for making international calls. This regulatory prohibition is hindering the competition in the voice segment and denying the greater choice to the customers.

Non-permissible to cable operators for voice telephony: in India, the cable operators are not allowed in the voice segment can be internet service provider after taking the ISP license issued on city or circle or national level. The regulatory impediment in India to the cable operators in entering the voice segments is restricting the competition.

The clash between the regulatory authority and the CCI: There are issues regarding the overlap between Competition Policy/Law and sector-specific regulatory authority. Regulation of industry has three primary dimensions-technical, economic and competition. These three elements have to be distributed between the sectoral regulation and the CCI. There is a requirement to create systems to ensure co-operation between CCI and other sectoral regulators. Conflicts may arise due to different prioritization of their respective goals by the CCI and sectoral regulators. The telecommunication Act provides TRAI to deal with competition issues while the Competition Act, 2002 is already mandated to deal with the same.

Licensing policy: The government has provided six new 2G licenses to telecom operators at a fee of Rs. 1650 crore in 2008 on a first come first serve basis. This distribution took place after seven years of the previous distribution. In recently held 3G licenses auction all the incumbent private players managed to get licenses for 9-13 circles. It has been evident that the delay in the 3G auction, auction procedure and the head start given to the incumbent public players has caused a lot of unrest in the industry. Government licensing policies and a 74% FDI cap in the telecom sector has made industry unattractive to new entrant and investors.

The Spectrum Issue: Spectrum is the most important resource that is required for providing mobile services. Scarcity of spectrum leads to a higher cap on the deployment of mobile networks for the operators as they need more cell sites to improve service quality. Further, the growing usage of spectrum and the resultant scarcity may lead to re-use of spectrum and increase chances of congestion in networks leading to constraints on service quality.

CONFLICTS BETWEEN THE REGULATOR AND THE COMPETITION AUTHORITIES

The telecommunication industry is subject to both the TRAI and the Competition Commission of India. To the question of duality of control and legislation, Paul Nihoul’s in his article on Convergence in European Communications, in International Journal of Communications Law and Policy puts forth the basic distinction quite succinctly:

Regulation is seen as sector-specific whereas Competition (law) would be more general. That feature – it is said – implies that Competition (law) would probably offer the best tool to govern the markets, as a general intervention is apparently better designed to cope with a converging world where specificities should be removed.”

In the Deutsche Telecom case[xiii]the incumbent was brought before the Commission in spite of the fact that it had complied with the price-caps of the German national regulator. The CFI refused to acknowledge this point at all.[xiv] The court’s reasoning seemed to be that the incumbent had enough autonomy, within the scope of the prices set, to see that its own prices did not result in a squeeze. The problem with this is that it presupposes transparency of information about pricing structures, costs, overheads and the detailed business plan of the rivals on part of the dominant undertaking. Since the German authorities had decided a range for the prices, it is logical to assume that such prices were not prima facie unreasonable. In fact, the German Regulator notes this fact in its decision of 29 April 2003, where competitors had applied to it[xv]:

“Competitors are not so prejudiced with regard to their competitive opportunities in the local network by the slight difference between retail and wholesale prices as to make it economically impossible for them to remain in the market or even to remain in the market.”

After this has been ascertained by the authorities themselves, it does not seem reasonable to expect the incumbent to look out for that slight difference in prices. That would be tantamount to saying that the incumbent has a positive duty to ensure that its rivals succeed in taking its own market share. Also, one of the ways in which the CFI substantiated its findings was actual market analysis of the shares that rivals held, even after the fixing of prices by the German regulator.[xvi] It seems that the only feasible way for a dominant operator to know whether there is an inadvertent price squeeze would be an ex-post market share analysis after price fixing.

The Competition Act of 2002 gives wide powers to the Competition Commission to preserve and protect competition in Indian markets.[xvii] The Act lays down the scope of the interaction between the Commission and statutory authority in section 21. The nature of the interaction under this provision is a reference and an opinion therein. It is quite obvious that this would not, in any circumstances, bind the party asking for the reference. So, as far as this provision is concerned, it seems quite clear that both the Commission and the statutory authority are placed on an equal footing. However there is a provision that explicitly states that the Act is to have an overriding effect[xviii]and probably in that non-obstante clause would lie the solution to the conflict that might arise between the CCI and the TRAI and it would seem to lend itself to the interpretation that the CCI would be the superseding authority. On closer inspection of section 62, the intention of the legislature seems to become clearer and the concept of harmonious construction emerges. As far as possible, direct conflict should be avoided and decisions of the CCI should be construed in harmony with the regulations of the TRAI.

MERGERS AND ACQUISITION IN THE INDIAN TELECOM INDUSTRY

The first merger and acquisition deal in the Indian telecom industry occurred in 1998 between Max Group of Delhi and Hutchison Group of Hong Kong. 41% of stakes of Orange services in Mumbai was acquired by Hutchison from Max for 560 million US Dollars. In the years that followed several other mergers and acquisitions took place in the telecommunications sector in India. Important ones among them include:[xix]

  • Acquisition of Command Cellular Services in Kolkata by Hutchison from Usha Martin in 2000.
  • Acquisition of 79.24% stakes of Aircel, Chennai by Sterling group from RPG group for Rs. 210 Crores in 2003.
  • Acquisition of 48% stakes in Idea cellular by Aditya Birla group from the Tata group in 2005.
  • Acquisition of Hutch services in India by Vodafone in 2006.

Recent mergers and Acquisitions

  • Idea Cellular takeovers Spice Telecom
  • Idea buys 40.8% stake @ Rs.2720 crores.
  • Idea gains entry in the contiguous wireless markets of Punjab and Karnataka, which account for 11% of India’s total wireless subscribers.
  • Idea gains all-India subscriber market share increasing from9.5% to 11.1%.
  • Ideas operations in the 900 MHz GSM spectrum band will increase from the current 7 service areas to 9 service areas.
  • Tata Docomo paid 2.7 Billion USD for a 26% stake in Tata Teleservices. The deal values Tata Teleservices at $10 bn.

CONCLUSION

The Indian telecom industry is witnessing a shift from an era of total monopoly to the duopoly and even oligopoly in certain service areas. The dominance of BSNL/MTNL over the incumbent players is existent still mostly due to the clout they enjoy with the regulator the Department of Telecommunications. Further development of strong competition in telecommunications requires the concerted efforts of the competition authority, the sectoral regulator, the governmental telecommunications policy body, the Department of Telecommunications, the legal apparatus of the country and other governmental agencies and ministries. Fostering a competitive environment in services industries, such as telecommunications, depends largely on an independent, strong regulatory mechanism that derives its legitimacy from statutes that convey well-defined powers, functions, and responsibilities. The quality and transparency of regulation and the efficacy of the dispute settlement mechanism remain key factors in attracting investments, which are needed to implement the sweeping changes that stem from convergence, changes in business practices and evolving consumer needs in the telecom sector. The telecom sector in India has traveled far, emerging from its early struggles to expand basic service to reach the current phase of the phenomenal growth of wireline and wireless telephony, as well as value-added services. The sector has surmounted many obstacles in reaching its current stage of development but has to continue to reform if it is to realize fully the potential of new technologies and truly become an engine of inclusive economic growth.

BIBLIOGRAPHY

[i] Tele-density is defined as the number of telephones per 100 people.

[ii] TRAI data.

[iii] R.U.S. Prasad, The Impact of Policy and Regulatory Decisions on Telecom Growth in India,Working Paper No. 361, Stanford Center for International Development, July 2008.

[iv] R.U.S. Prasad, The Impact of Policy and Regulatory Decisions on Telecom Growth in India,Working Paper No. 361, Stanford Center for International Development, July 2008.

[v] Recommendation contributed in contributed to lowering the license fee and creating more choice of technology.

[vi] Higher data speed for VSAT users and lower license fees for captive VSAT networks.

[vii] Removed restrictive provisions in the existing license conditions.

[viii] Lifted the cap on the number of access service providers in any service area and allowed service providers to offer services on GSM/CDMA platforms or any other technology under the same license.

[ix]Telecom Sector in India, Competition Commission of India, available at http://www.cci.in/pdf/surveys_reports/Telecom-Sector-in-India.pdf

[x] Telecommunications Sector,  Invest India, available at http://www.investindia.gov.in/?q=telecommunications-sector

[xi] Nishita Sinha, Economic Analysis of Competition and Merger Issues in the Indian Telecom Sector, Jawaharlal Nehru University.

[xii] Economic Issues (Telcos) 2003

[xiii] Deutsche Telekom AG v Commission of the European Communities, Case T-271/03, OJ C 128 from 24.05.2008, p.29

[xiv] Deutsche Telekom para. 76- where the CFI takes cognizance of the fact that the applicant had indeed mentioned in its application that “charges which are checked and authorized cannot be described as an abuse on part of the undertaking which adopts them.” At para 114 the CFI says that at no point did the German Regulatory Authority mention Article 82 of the EC Treaty and also says in para 113 that the national regulator may not have been concerned with competition at all; that the objectives of such regulation may have been different from that of the Commission.

[xv] Regulierungsbehorde fur Telekommunikation und Post (German Regulatory Authority for Telecommunication and Post) Decision of 29 April, 2003.

[xvi] Deutsche Telecom at para. 239. Here the CFI goes on to look at market shares of rival operators after ascertaining

that such a measure would not be a pre-condition to a finding of a price squeeze abuse.

[xvii] Section 18 of the Competition Act, 2002

[xviii] Section 60 of the Competition Act, 2002

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