Reframing Abuse of Dominance: The Case for an “Attempt to Monopolise” Standard in Indian Context

The current framework as regards Section 4, Competition Act, 2002 has established a two-step gate wherein initially the dominance of an enterprise has to be established, and only then can the second gate involving examination of certain conducts, including predatory pricing, be carried by CCI in order to determine abuse.

Introduction

The existing Indian framework under Section 4, Competition Act, 2002¹ requires sequential inquiry into abuse of dominance, starting with a prerequisite of establishing dominance prior to analysing conduct. However, in the case of contemporary networks and digital markets, such an approach has turned out to be inadequate. This paper contends that the inflexibility of this two-step approach does not respond adequately to exclusionary tactics by non-dominant but heavily capitalised companies. Part 1 sets out the limitations of the current dominance-first strategy, exemplified through seminal Competition Commission of India (CCI) decisions along with limitations of the merging of two elements of abuse and dominance. Part 2 outlines a modified “attempt to monopolise” test — taken from US antitrust law — as a sound middle course and elaborates on various of its limbs. Part 3 applies the proposed framework to the Jio-Airtel controversy, showing how it might have facilitated prompt regulatory intervention without inhibiting competitive entry.

The current framework

The current framework as regards Section 4, Competition Act, 2002 has established a two-step gate wherein initially the dominance of an enterprise has to be established, and only then can the second gate involving examination of certain conducts, including predatory pricing, be carried by CCI in order to determine abuse. The pattern followed by CCI has been remarkably consistent. In Lifestyle Equities C.V. v. Amazon Seller Services (P) Ltd., Amazon commanded 62 per cent of the online retail industry and offered deep discounts leading to the departure of various small merchants, this was not deemed dominant on account of the presence of Flipkart which held a 30 per cent market share.² Likewise, in Meru Travel Solutions (P) Ltd. v. Uber India Systems (P) Ltd., despite Uber losing Rs 204 per trip and leading to the closure of various companies including Meru, Mega Cabs and Wise Travel India (WTI), it was not deemed dominant as the Commission noted that it faced competition from Ola.³ What follows is that this two-step approach only leads to monopolistic firms being held dominant, for instance in Umar Javeed v. Google LLC, since Google controlled 80 per cent of the relevant market, it was held to be dominant.⁴ This is especially true for platform economy wherein it is all but impossible to establish sole dominance of a particular enterprise due to the presence of multiple firms.

This sequential approach reaches its sharpest contradiction in Jio v. Bharti Airtel wherein despite Jio’s six-month zero-price launch triggering industry-wide tariff cuts, forcing weaker telcos to exit and reducing the field from nine operators to three, the Commission refused even to open an abuse enquiry because Jio’s share of the “wireless services” was only 6—7 per cent along with the presence of other firms like Airtel and Vodafone in the telecom sector.⁵ However, this reasoning is circular; in that it allows enterprises to engage in predatory pricing in a market with several entrenched enterprises until the market either becomes a duopoly or a monopoly which happened in the case of the telecom sector making it a triopoly.⁶ Additionally, this approach tolerates closures of various incumbent firms, risks long-term higher prices, and while it leads to short-term consumer welfare it risks long-term competition and sustainability. Moreover, the Competition Law Review Committee Report notes that even non-dominant firms can have significant anti-competitive repercussions at times more so than a dominant firm illustrating how firms can engage in predatory conduct even before gaining market power, however the same remains unaddressed under the current framework.⁷

However, an aberration in this rather rigid sequence can be seen in Uber (India) Systems (P) Ltd. v. CCI. In this case, the Court held that the predatory pricing in the form of a loss of Rs 204 per trip itself became an indicator of the firm’s dominance.⁸ Thus, the Court merged the two elements of Section 4, i.e. abuse and dominance wherein the former was seen as an indicator of the latter. Similarly, in MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd.⁹ the CCIs observed that the conduct of National Stock Exchange of India (NSE) of charging zero transaction fee indicated its dominant position. However, the flipping of coin and merging of the two elements is not without its shortcomings. This approach can lead to stifling of competition where a new entrant seeking to establish its position in the market through promotional pricing could be miscast as dominant. Additionally, it can set off a situation of over-intervention by the CCI besides shifting the focus of the enquiry from being anti-competitive to anti-competitor.¹⁰

What can be done

As noted in the preceding section, the current Indian regime seems to oscillate between under-reach where the two-gate sequence allowed the well-funded entrant like Jio to reshape the telecom sector unchecked and over-reach which stifles the competition and leads to over-intervention. Neither of the approaches advances the aim of Section 18 to promote and sustain competition as the former notices damage only after it is done while the latter stifles the very competition itself. The problem with the current framework is further highlighted when seen in the context of digital economy markets which are characterised by “hyper-competition”, network effects, intensive data, and deep discounting.¹¹ This leads to a situation wherein the conventional criteria of predatory conduct could be met by a firm while still being in the process of becoming dominant, without it being a dominant player. Thus, what is needed is a middle-path approach. In this context, the author proposes the adoption of the “attempt to monopolise” framework adapted from Section 2, Sherman Act, 1890 (US).

Section 2, Sherman Act not only penalises monopolies but also any “attempt to monopolise”. The key elements constituting an “attempt to monopolise” have been laid down in Swift & Co. v. United States, which involves: 1) anti-competitive conduct, 2) a specific intent to monopolise, and 3) a dangerous probability of achieving monopoly power.¹² Adaptation of this framework to the Indian context can help fill lacunas afflicting the current CCI’s approach. Under this framework, the inquiry begins with the nature of the conduct especially whether it engages in exclusionary conduct like pricing below cost. Additionally, a further shift can be made from average variable cost (AVC) to long-run average incremental cost (LRAIC), which is justified more so when considered against the backdrop of digital platforms and telecom markets where exists economies of scale. Thus, despite the high initial investment, the cost of adding an additional customer is nearly zero.¹³ As a result, AVC approaches zero and fails to reflect true economic sacrifice. The second limb concerns the intent to monopolise. In the US, this does not refer to an intent to compete vigorously, but rather a specific intent to eliminate competition and secure monopoly power.¹⁴ While Section 4, Competition Act does not contain the word “intent”, Indian case laws have always inferred intent from economic behaviour, especially where companies incur continuous losses that do not make any economic sense unless there is an intention to exclude competitors and recoup losses later.¹⁵ This type of intent already exists in the CCI and judicial framework.

The third prong of the test consists of the dangerous probability of achieving monopoly power which requires consideration of the relevant market and ability of the firm to destroy competition.¹⁶ The courts in the US apply the same factors to “attempt to monopolise” as used in their assessment of already dominant firms. In the Indian context, the Commission does not jettison the familiar Section 19(4)¹⁷ factors; it simply reads them prospectively. Thus, the Commission can apply Section 19(4) prospectively while considering various factors like rapid market share increase, high entry barriers, signs of rival exit or contraction or historic intensity of competition.

Application of the framework to the Jio versus Airtel

The effectiveness of the proposed “attempt to monopolise” becomes apparent when applied to the facts of Bharti Airtel Ltd. v. Reliance Jio¹⁸. If the CCI had used this proposed framework in early 2017, even before Jio had gained formal dominance, there was adequate and pressing evidence to warrant early intervention. The first limb — exclusionary conduct — was evident in Jio’s pricing approach through its “Welcome Offer” launched on 5 September 2016, followed by the “Happy New Year Offer” extending the zero-tariff data and voice services up to 31 March 2017.¹⁹ Jio provided nationwide 4G data at an effective rate of Rs 0 — Rs 5 per GB and voice calls at Rs 0, despite the fact that it was liable to pay 14 paise per minute as interconnection usage charges for off-net calls.²⁰ When measured against an LRAIC benchmark, sustained pricing was well below cost, satisfying the first prong of the test. The second limb — the intent to monopolise and eliminate competition was witnessed in different acts of the Jio. By December 2016, Jio had already captured 83 per cent of the emerging 4G market, and its ongoing dependence on free services after this juncture could no longer be explained as promotional or defensive.²¹

The third prong — the dangerous probability of achieving monopoly power —was also evident. Jio gained 50 million subscribers within 83 days of its operation and, as of March 2017, had contributed to the 4G LTE (Long Term Evolution) subscriber base reaching 129.32 million out of a total of 400 million wireless internet subscribers in India.²² It also had control of the largest contiguous spectrum blocks in the 800 MHz, 1800 MHz, and 2300 MHz bands, and managed about 66 per cent of India’s 4G base stations at that time. There were no other spectrum auctions planned for at least two years, which provided Jio with a structural advantage.²³ Additionally, the impact on rivals was also instantaneous — with several small companies withdrawing from the market, while incumbents such as Vodafone and Idea were being compelled to merge. Moreover, the backing of a Rs 1.5 lakh crores investment by its parent, Reliance Industries, evidenced its capability to continue with the predatory conduct further driving out the competition and indicating the dangerous probability of it acquiring a monopoly.²⁴

Thus, on account of the satisfaction of all the limbs under the proposed framework, CCI would have had sufficient legal and factual grounds to initiate a prima facie inquiry under Section 26(1)²⁵ and potentially, impose interim remedies such as temporary price floors. Such action would not have prevented Jio’s entry or innovation but might have saved a market breakdown that subsequently resulted in a triopoly.

Conclusion

The development of digital markets requires a transformation in the way competition law approaches market power and abuse. The current dominance-first model in India ignores the exclusionary conduct of various non-dominant but highly capitalised firms at their nascent stage, while the other approach of overlapping abuse with dominance threatens over-enforcement. This paper proposes the adaptation of the “attempt to monopolise” test in the Indian context, with its three limbs of exclusionary conduct, intent and dangerous possibility of monopoly offering a middle path to the present extreme approaches in the current framework. The paper proposes how the proposed framework resonates with data and networkbased economies characterised by network effect and hyper-competitiveness. Applying it to the Jio — Airtel case, reveals how prompt action could have maintained competition in the market. As India’s competition regime evolves, the inclusion of such dynamic instruments will be central to ensuring long-term consumer welfare and healthy long-term competition.