Absolved Thrice, Reliance Jio Now Faces Final Regulatory Challenge

Even as various Competition Commission hearings loom, a prominent US-based equity research group has effectively accused Reliance and the Modi government of crony capitalism.

Credit: Reliance Jio

Reliance boss Mukesh Ambani. Credit: Reliance Jio

New Delhi: A set of hearings at the Competition Commission of India (CCI), due to start this week, present a final regulatory challenge for Reliance Jio, which has so far been given a clean chit over multiple thorny issues at other regulatory forums.

The various upcoming CCI hearings will see the anti-competition body ruling on complaints filed by all stakeholders – Reliance Jio, the incumbent telecom industry and various consumer associations – against one another. Reliance Jio has accused Airtel, Idea and Vodafone of cartel behaviour; various consumer groups have filed complaints against Jio and Airtel; and Airtel has filed its own complaint of predatory pricing against Reliance last week.

In the last three months in particular, and over the last three years in general, the incumbent telecom industry and Reliance Jio have been at loggerheads over a number of policy and regulatory issues. To the telecom lobby’s woes, very few of the decisions taken so far have gone against Reliance Jio.

Prominent US-based equity research group Morningstar – in a research note filed last week analysing the potential Vodafone-Idea merger –singled out the alleged favouritism being shown towards to Reliance Jio by the Modi government.

“Many of its [Reliance Jio’s] actions are questionably legal, but Reliance is extremely well connected politically, and so far, the government has been afraid to step in,” the report stated, citing Jio’s entry as a potential reason for the Vodafone-Idea merger.

“The firm’s [Reliance Jio’s] promotions have extended beyond the time allowed by regulation, and it has complained that other operators have intentionally dropped voice call connections; the government has agreed with this, even though RJio’s network is built for data and the voice problems may very well be coming from its own network,” Morningstar’s report said.

What are the three major issues that have gone Reliance Jio’s way? They are as follows:

1) 2010 Spectrum Auction: As multiple commentators have noted, the 4G/BWA spectrum auction in 2010, through which Reliance Jio was essentially created, was accompanied by a retrospective change in rules that appeared to benefit one party. This matter was laid to rest by the Supreme Court last April when it dismissed a plea by advocate-activist Prashant Bhushan.

2) Test Trials: As The Wire has extensively reported, incumbent operators Airtel and Vodafone accused Jio of disguising its commercial launch (which would have required various permissions/licence fees to have been paid) as  “extended field trials”. No specific regulator or government body ruled against the incumbent industry’s complaints, but the time-consuming back-and-forth between TRAI and the Department of Telecommunications effectively allowed for a long trial period.

3) Free Data: Airtel and others have accused Reliance Jio of predatory pricing – more specifically, that its inaugural free data offer and then follow-up ‘Happy New Year’ offer violate various licence conditions as well as regulatory conditions surrounding promotional offers. On the advice of the attorney general, telecom regulator TRAI last week ruled that Reliance Jio’s free data offer violated no rules regarding promotions. It should be noted that Airtel’s argument here is perhaps on a sticky wicket – the main charges of predatory pricing will (and ideally should) be examined by the CCI in a month’s time.

Beyond these three thorny issues, there are a handful of others, including the controversy surrounding a potential uniform spectrum usage charge, where the attorney general found more merit in Reliance’s argument and deemed that it would not be possible to retrospectively amend the rules of the 2010 auction.

Another, perhaps muddy, policy issue is the telecom regulator’s intervention in doing away with interconnect charges. This is a matter that is yet to be wholly decided.

CCI forecast

What then should we expect from the CCI? While Jio has accused Airtel and others of cartel-like behaviour (over the controversial points of interconnect issue), Airtel has filed its own counter-complaint, alleging that Reliance’s “predatory behaviour” has “injured competition”.

While it’s difficult to say, Reliance Jio officials are not worried. In conversations with The Wire, Jio officials note the company isn’t coming from a position of market dominance, making it difficult for the CCI to rule against its largely free data offer.

Multiple legal experts also agree with this perspective.

“If one goes by past rulings by the CCI in similar disruptive and new industries like Uber-Ola or Flipkart-Amazon, the body has largely ruled that if a company doesn’t have a dominant position in the market, it can’t be seen to have engaged in predatory pricing,” a senior lawyer, who declined to be identified, said.

While there is a certain amount of nuance – in the Uber case, for instance, the CCI noted that online taxi aggregators and auto-rickshaws were in “different industries” – that the competition body will definitely have to go through, it remains to be seen whether Reliance Jio’s free data offer will be seen as anti-competitive.