Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT):  The Coram of Justice Jarat Kumar Jain (Judicial Member) and Dr Alok Srivastava (Technical Member) held that Ola’s below-cost pricing was not predatory pricing with a view to dislodging any competitor from the market but towards establishing itself as an effective and reliable brand in the market and also opening up a latent market to its advantage.

Two appeals filed by appellant Meru Travel Solutions (P) Ltd. and Fast Track Call Cab (P) Ltd. assailed the common order passed by the Competition Commission of India under Section 26(6) of the Competition Act, 2002.

Commission decided that on the basis of information submitted by Fast Track and Meru and analysis of DG’s investigation report, the dominant position of Ola in the relevant market and abuse of its dominant position was not established and Ola had not been found to have anti-competitive agreements with drivers.

By the present decision, both the appeals will be disposed off.

Analysis and Discussion

Technology | Ola v. Other Radio Taxis

Tribunal noted that before the advent of technology-leveraged, network-based aggregator models, taxi services such as Meru, Fast Track, Easy Cab, Taxi For Sure etc. also leveraged technology to pride ease of booking and taxi ride, yet Ola’s model differed from them in many ways, particularly its use of the smartphone-based application which could be used with remarkable ease by the riders and provide taxi services anywhere in the area within minutes of ‘hailing’ through the mobile phone.

Hence, it could not be said that Ola employed technology in a much more effective and enabling fashion to provide services which previous radio taxi operators were not able to.

Market Share

Ola market share is seen to increase from 5-6% in 2012-13 to 59-60% in 2014-15 and to 61% in 2015-16. Thus, there was a significant rising trend noted upto January 2015, whereafter Ola market share had been plateauing or witnessing a gradual decline.

Though the active fleet size increased but in Tribunal’s opinion merely the size of the fleet does not decide the dominant position of a particular radio taxi service provider.

“We note that the technological edge that the platform crested by Ola which provide ease of taxi bookings, rider security, payments, drivers welfare made many riders comfortable with the network of Ola. The customer incentives worked in conjunction with these facilities and conveniences to attract riders to Ola and a certain brand image was created and reinforced over a period of time.”

Further, another highlighting factor noted was that Ola was itself facing competition in the relevant market from established players such as Meru and Fast Track and later from Uber while it was trying to establish its brand.

Below Cost Pricing | Predatory pricing by Ola?

In Tribunal’s opinion, the strategy adopted by Ola was in view of the market conditions, helped by a heavy infusion of foreign funding. Hence, there was no below-cost pricing by Ola for any sustained period of time which could be labelled as predatory pricing and abuse of its dominant position in the market.

Coram also agreed with the finding of DG that the below-cost pricing adopted from May-June 2014 onwards could be treated as the variable cost which, as argued by Senior Counsel of Respondent Ola, was the expenditure that Ola undertook to establish its brand in the market and increase its market share.

It was also noted that Uber also adopted an almost similar network approach for the provision of radio taxi, hence Tribunal was inclined to agree with Ola’s arguments that Uber was a significant competitor in the relevant market and Ola was responding to pricing actions of Uber while trying to establish itself in the Bengaluru market of radio taxi services.

Tribunal found that the situation in the present matter was akin to that in the matter CCI v. Fast Way Transmission (P) Ltd., (2018) 4 SCC 316, wherein the Supreme Court held that when an enterprise enjoys a dominant position in the relevant market, it is enabled to operate independently of competitive forces or affect its competitors or consumers or that relevant market in its favour.

“We do not think that Ola could operate independently of other competitors in the relevant market, and hence it did not enjoy a dominant position in the market.”

Conclusion

Stating that Ola started from a low market share of about 20%, Tribunal held that it cannot agree that Ola was at that initial time in a dominant position and was trying to push out competitors from the market by employing below-cost, predatory pricing.  An increase in its market share over a period of time, was due to a combination of factors, of which below-cost pricing was one.

Another significant factor, with regard to Ola’s agreements with its drivers, Tribunal noted that the agreements cover many aspects, which concern welfare measures for drivers and helping them source credit for buying vehicles. The incentives provided to drivers are dynamic and not constant in time. The drivers have the option to shift to other networks depending on their requirements and convenience.

Hence the driver’s agreement that Ola has with drivers with entirely optional and does not in any way bind the drivers to Ola’s network in any way.

Therefore, Tribunal did not find the driver’s agreements anti-competitive in violation of Section 3 of the Act.

Ola is working on generating demand through customer discounts and then bringing in more drivers to cater to the increased demand. Ola tries to create a win- win for the riders and drivers, and of course to its enterprise.

Lastly, Tribunal held that the Orders of CCI do not require any interference and therefore the appeals were dismissed. [Meru Travels Solution (P) Ltd. v. Competition Commission of India, 2022 SCC OnLine NCLAT 37, decided on 7-1-2022]


Advocates before the Tribunal:

For Appellant:

Ms. Sonal Jain, Mr. Udayan Jain, Mr. Abir Roy, Mr. Ishkaran Singh, Ms. Kajal Sharma and Ms. Riya Dhingra, Mr. Vivek Pandey, Mr. Raj Surana, Mr. Ishaan Chakrabarti, Advocates.

For Respondents:

Ms. Shama Nargis, Deputy Director, CCI.

Mr. Ajay Kumar Tandon for R-1, CCI. Ms. Purnima Singh, Ms. Neha Bhardwaj, Ms. Shivani Malik, Ms. Astha Baderiya, Advocate for R-1.

Mr. Rajshekhar Rao, Sr. Advocate with Ms. Nisha Kaur Uberoi, Mr. Gautam Chawla, Mr. Raghav Kacker, Ms. Sonal Sarda and Mr. Samriddha Gooptu, Ms. Sakshi Agarwal, Mr. Ishan Arora, Mr. Madhav Kapoor, Advocates for R-2.

Cyril Amarchand MangaldasExperts Corner

Introduction

The Supreme Court of India (Supreme Court) in a landmark judgment has after a wait of almost four years allowed the Director General (DG) to investigate into the alleged dominance of Uber India Systems Pvt. Ltd. (Uber) and abuse thereof in the radio taxi services market in the Delhi-NCR area[1]. The Uber Order[2] emanates from an information filed by Meru Travel Solutions Private Limited (Meru), that was dismissed by the Competition Commission of India (CCI) stating that Uber is not prima facie dominant in the relevant market and thus, closing the case under Section 26(2) of the Competition Act, 2002 (CCI order). 

The CCI order was then challenged by Meru before the Competition Appellate Tribunal (Compat)[3] which reversed the findings of the CCI regarding the prima facie dominance of Uber and expanded the relevant geographical market from Delhi to Delhi-NCR. The Compat primarily differed from the CCI on the issue of reliance on a market research report by New Age TechSci Research Private Limited (TechSci). Whereas the CCI did not consider the TechSci report due to contrary findings in a 6Wresearch report, the Compat noted that the CCI in an earlier case has relied upon a TechSci report and that the two reports showing contrary results is a good reason to order an investigation into the matter. Consequently, the Compat judgment ordering the DG to investigate the matter was challenged and upheld by the Supreme Court in appeal.

The Uber Order[4] supplements the growing competition law jurisprudence in India and highlights “predatory pricing” as a factor for both establishing dominance and abuse of dominance. The primary reasons for the Supreme Court to interfere in the matter was that the information filed before the CCI was presented has been shown to them which prima facie depicts that Uber has been engaging in predatory pricing by offering huge discounts to consumers and high incentives to driver-partners resulting in an average loss of INR 204 to Uber on each trip. The Supreme Court based on this information alone stated that it would be very tough to say that there is no prima facie case under Section 26(1) of the Competition Act, 2002. 

CCI Jurisprudence on Predatory Pricing So Far

Thus far, the CCI has stated that predatory pricing is exclusionary and can be indulged in only by enterprises(s) which are dominant in a relevant market[5]. To this extent, the major elements in the determination of predatory behaviour include : 

(a) Establishment of the dominant position of the enterprise in the relevant market,

(b) Pricing below cost for the relevant product in the relevant market by the dominant enterprise,

(c) Intention to reduce competition or eliminate competitors, which is, traditionally known as the predatory intent test. [6]

The timeline and the evolution of CCIs jurisprudence in respect of predatory pricing has been discussed below: 

In MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. (2011)[7], the CCI held that predatory pricing is a subset of unfair price and as the unfair price has not been defined anywhere, the unfairness has to be determined on the basis of the facts of the case. The unfairness has to be examined in relation to the customer or the competitor. The CCI stated that there is no justifiable reason for the National Stock Exchange of India (NSE) to continue offering its services free of charge for such a long duration and stated that the conduct of zero pricing, in this case, is beyond promotional or penetrative pricing. 

The CCI in its orders has laid down the factors to be taken into consideration while assessing the allegations of predatory pricing, specifically with regard to whether there is reduction or elimination of competition.

 In Transparent Energy Systems (P) Ltd. v. TECPRO Systems Ltd. (2013)[8], the CCI provided that the following findings are relevant for the identification of predation :

(a) The prices of the goods or services of the enterprise are at a very low level;

(b) the objective is to drive out competitors from the market, who due to the low pricing would be unable to compete at that price;

(c) there is significant planning to recover the losses if any, after the market rises again; or

(d) the competitors have already been forced out. 

The allegation of predatory pricing was the primary issue argued before the CCI in Bharti Airtel Ltd. v. Reliance Industries Ltd. (2017)[9]. The issue arose from an allegation that Reliance Jio Infocomm Limited (RJIL) since its inception has been providing free telecom services below its average variable cost with the intention of eliminating competitors. The CCI noted that the alleged predatory conduct should be investigated only if RJIL is prime facie dominant in the relevant market and in the absence of such dominance, there is no question of any investigation for predatory pricing. The CCI’s observation disclosed that the informant had not demonstrated reduction of competition or elimination of any competitor arising from RJIL’s actions. The CCI also noted that RJIL was a new entrant to market and its competitive pricing is a short-term business strategy to penetrate the market and establish its identity. The CCI accordingly dismissed the information filed against RJIL and closed the case under Section 26(2) of the Competition Act, 2002.

In Fast Track Call Cab (P) Ltd. v. ANI Technologies (P) Ltd. (2017)[10], similar allegations as in the Uber Order[11] were raised before the CCI i.e. pertaining to predatory pricing. The CCI, concurring with the DG’s investigation, found that ANI Technologies Pvt. Ltd. (Ola) did not exercise dominant position in the market. The informants put forth the allegation that the conduct of predatory pricing, was an evidence of dominance in itself. In this regard, the CCI noted that 97. … New entrants commonly engage in such practices to gain a toehold in the market and holding them dominant based on simple observation of conduct may have the undesirable result of chilling competition [12]. and accordingly, closed the case against Ola. 

Uber Order—Impact on Establishing Dominance and Predatory Pricing

The importance of establishing “dominance” of an enterprise before proceeding with an investigation has been clearly emphasised by the CCI in its jurisprudence. However, the Supreme Court has taken a slightly divergent view in the Uber Order [13]. It has stipulated that predatory pricing itself could tantamount to proof of dominance as it affects the competitors of a relevant enterprise in its favour as per Explanation (a) of Section 4 of the Competition Act, 2002. In this regard, the Supreme Court in the Uber Order[14] cited that 6. … if … a loss is made for the trips, Explanation (a)(ii) would prima facie be attracted inasmuch as this would certainly affect the appellant’s competitors in the appellant’s favour or the relevant market in its favour. 

The CCI in its orders has not considered predatory pricing as a factor for ascertaining dominance of an enterprise rather dominance has been taken as an after-effect of dominance. For e.g., in the NSE case[15], the CCI considered, inter alia, the ability of NSE to sustain zero pricing in the relevant market for long enough to outlive competition as a factor to ascertain the position of strength of NSE, however, did not state that engaging in predatory pricing can itself amount to proof of dominance. 

Takeaways 

The CCI has not held predatory pricing to be abusive under all circumstances. It has been held to be a legitimate strategy for a new entrant to capture market share and attracting customers to a new product or service. However, the same practice becomes abusive when it is continued indefinitely with the intent of driving out existing competitors and subsequently recouping losses incurred while carrying out the predatory pricing.

The Uber Order[16] has taken a circular approach to dominance. This approach was discussed in the Ola case[17] where it was argued that predatory pricing is evidence of dominance in itself. However, the CCI’s position in the Ola case[18] does not get compromised by the Uber Order[19] and this is because the CCI explained that the market for radio taxis was at a nascent stage and the low prices are not because of cost efficiency but because of the funding it has received from private equity funds.  

Thus, the Ola case[20] is not rendered wholly inconsistent with the approach of the Supreme Court. It will be interesting to watch whether the CCI going forward considers predatory pricing as proof of both dominance and abuse of such dominance.


Dhruv Rajain, Principle Associate, can be contacted at dhruv.rajain@cyrilshroff.com.

Shubhankar Jain, Associate can be contacted at shubhankar.jain@cyrilshroff.com, Aakriti Thakur, Associate can be contacted at aakriti.thakur@cyrilshroff.com and with the Competition Law Practice at Cyril Amarchand Mangaldas.

[1] Uber (India) Systems (P) Ltd. v. CCI, (2019) 8 SCC 697 (Uber Order).

[2] (2019) 8 SCC 697.

[3] Erstwhile Appellate Tribunal replaced by the National Company Law Appellate Tribunal by way of Notification in the Gazette
of India dated 26-5-2017 available at <http://egazette.nic.in/WriteReadData/2017/176250.pdf>.

[4] (2019) 8 SCC 697.

[5] Advocacy Booklet on Provisions Relating to Abuse of Dominance available at
<https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/AOD.pdf>.

[6]  Ibid

[7] 2011 SCC OnLine CCI 52.

[8] 2013 SCC OnLine CCI 42.

[9] 2017 SCC OnLine CCI 25.

[10] 2017 SCC OnLine CCI 36.

[11] (2019) 8 SCC 697.

[12] 2017 SCC OnLine CCI 36.

[13](2019) 8 SCC 697.

[14] (2019) 8 SCC 697, 700.

[15] 2011 SCC OnLine CCI 52.

[16] (2019) 8 SCC 697.

[17] 2017 SCC OnLine CCI 36.

[18] Ibid

[19] (2019) 8 SCC 697.

[20] 2017 SCC OnLine CCI 36.

Cyril Amarchand MangaldasExperts Corner


The Indian telecom sector has witnessed continual activity in the recent years, with the entry of new players such as Reliance Jio, consolidation between existing players such as Vodafone and Idea Cellular and the exit of incumbent players such as Telenor and Tata Teleservices. This constant transformation has intensified the battle between industry players to garner market shares and attract consumers. In addition to competing in the marketplace, telecom operators have also been fighting legal battles on competition issues such as cartelisation and predatory pricing as well as on telecom issues such as interconnection. Given that the issues at the core of these matters relate to both competition and telecom laws, a turf war has arisen between the Telecom Regulatory Authority of India (TRAI) and the Competition Commission of India (CCI) re jurisdiction.

Notably, CCI had, through a letter to TRAI last year, highlighted its competence to look into matters relating to predatory pricing. The letter was a result of a consultation paper issued by TRAI in February 2017 on anti-competitive concerns in tariffs by Telecom Service Providers (TSPs).[1] In his letter, the CCI Chairperson stipulated that “issues and questions for consultation relating to delineation of relevant market, assessment of dominance and predatory pricing” are “issues of determination for the Commission”.[2]

Responding to CCI, TRAI stressed that it had the experience and capability to examine all matters, including competitive issues, falling within the purview of tariffs.[3] In line with its assertion, pursuant to the Telecommunication Tariff (Sixty-third Amendment) Order, 2018 (the Amendment Order)[4], TRAI has recently amended the Telecommunication Tariff Order, 1999 (the Tariff Order), to regulate tariffs offered by TSPs on the basis of competition law principles. Through the amendment, TRAI has introduced concepts of “significant market power” and “predatory pricing” in the Tariff Order.

According to TRAI, such regulatory powers are set out under the Telecom Regulatory Authority of India Act, 1997 (the TRAI Act), which requires it to take “measures to facilitate competition and promote efficiency in the operation of telecommunication services so as to facilitate growth in such services”. To further this mandate of facilitating competition, TRAI in its Amendment Order has provided guidance on non-predation, through the insertion of the following definitions:

(a) “Non-predation” has been defined as not indulging in predatory pricing by a service provider having significant market power;

(b) “Significant market power” has been defined as a TSP holding a market share of at least 30% in the relevant market, which is to be determined on the basis of either subscriber base or gross revenue. The Amendment Order simultaneously recognises that the concept of ‘SMP’ flows from the concept of ‘dominance’ under competition laws;

(c) “Predatory pricing” has been defined as the provision of a telecommunication service in the relevant market at a price which is below the average variable cost, with a view to reduce competition or eliminate the competitors in the relevant market—Interestingly, the Amendment Order also refers to the definition of “predatory pricing” under the Competition Act, 2002 (the Competition Act) to emphasise that intent is the key;

(d) “Relevant market” has been defined as the market which may be determined by TRAI with reference to the relevant product market for distinct telecommunication services (such as Wireline Access Service, National Long Distance Service, International Long Distance Service) and the relevant geographical market;

(e) “Relevant product market” has been defined as the market in respect of a distinct telecommunication service for which the licensor grants licence to the TSP;

(f) “Relevant geographic market” has been defined as a market comprising the respective licence service area for which the licensor grants licence to the TSPs to provide distinct telecommunication services.

In addition to requiring the TSPs to conduct a self-check of tariffs at the time of reporting it to TRAI in order to ensure that there is no predation, the Amendment Order also confers suo motu powers on TRAI to examine tariffs to determine the occurrence of any predatory pricing, thus extending its jurisdiction to ex-post abusive conduct. In case of predation, a penalty not exceeding INR 50 lakhs per tariff plan for each service area can be imposed by TRAI.

Post the introduction of the Amendment Order however, officials of TRAI have clarified that dominant operators may match tariffs offered by a new entrant, and such actions would not be seen as predatory.[5]

On the other hand, the Competition Act established a sector agnostic regulator to prevent practices having adverse effect on competition and to promote and sustain competition in markets. The Competition Act sets out specific prerogatives of CCI to prohibit anti-competitive agreements and abuse of dominance. The abusive practices identified include predatory pricing. However, affording due consideration to the market dynamics, the Competition Act requires CCI to holistically examine such conduct. The in-depth examination required by CCI includes the delineation of the relevant market on the basis of factors such as end-use, pricing, consumer preferences, regulatory barriers, transport costs, etc.[6] Subsequently, CCI is required to make a determination of dominance giving due regard not only to the market share of the enterprise, but also to its size and resources, economic power, entry barriers, countervailing buyer power, market structure, etc.[7] Similar to clarifications from TRAI officials, the Competition Act also provides for a carve-out against predatory pricing if such pricing has been adopted to “meet the competition”.

However, contrary to the bright-line test of 30% under the Amendment Order, CCI’s decisional practice repeatedly cautions against adopting a blanket market share test for detection of dominance. As noted by CCI’s Chairperson in the letter to TRAI, market interactions should ideally be assessed on a case-by-case basis without any presumptions based on a formulaic framework.[8] CCI’s holistic approach is evidenced by its recent orders in the telecom sector, where it has approved mergers of key telecom players, despite the significant aggregate market shares, after having weighed in factors such as buyer power, increased switching, absence of switching costs, presence of other players, dynamic nature of the market, etc.[9]

The difference in the regulatory frameworks gives a preview of the contrasting approach to be adopted by the regulators for the same contravention and the conflicting regulatory views that the industry is likely to witness in the coming months. Moreover, while contrasting views may make compliance by TSPs difficult, similar findings may also lead to double jeopardy.

The regulatory conflict has already surfaced before courts, with the Bombay High Court finding that the Competition Act itself is not sufficient to decide and deal with the issues arising out of the provisions of TRAI Act and the contract conditions, under the relevant regulations.[10] The appeal to the Bombay High Court had been filed against a prima facie order of the CCI finding that TSPs, such as Airtel and Vodafone, had cartelised to deny adequate point of interconnections to Reliance Jio to thwart its entry into the telecom market. The decision of the High Court has now been appealed to the Supreme Court.

While the way forward is unknown, this fight for regulatory supremacy can only end with the CCI and TRAI joining forces to coordinate and consult with each other in matters that involve questions of competition and telecom laws. This will also be in line with the intent of the legislators who foresaw this situation and included a provision[11] under the Competition Act for a reference of matters inter se CCI and other statutory regulators.

 

Anshuman Sakle is a Partner with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at anshuman.sakle@cyrilshroff.com.  Arunima Chandra is a Senior Associate with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at arunima.chandra@cyrilshroff.com.

[1] Available at http://www.trai.gov.in/sites/default/files/Consultation_paper_03_17_feb_17_0.pdf.

[2]Available at https://www.thehindubusinessline.com/info-tech/turf-war-rages-between-cci-and-trai-over-telecom-tariffs/article9791247.ece.

[3]Available at http://www.financialexpress.com/industry/trai-tells-cci-it-has-power-to-settle-competitive-telecom-tariff-issues/798026/.

[4] Available at http://trai.gov.in/sites/default/files/TTO_Amendment_Eng_16022018.pdf.

[5]Available at http://www.livemint.com/Industry/O00tAdsmeBgcObcQSE42uO/Telecom-firms-free-to-match-Reliance-Jios-cheap-tariffs-ru.html.

[6] Sections 19(6) and (7) of the Competition Act.

[7] Section 19(4) of the Competition Act.

[8]Available at http://www.livemint.com/Industry/uzSqE22Uk4Lgt1jX8PjCOJ/CCI-to-Trai-Consult-us-on-predatory-pricing-issues.html.

[9]Vodafone/Idea, Combination Registration No. C-2017/04/502; Bharti Airtel Ltd./Tata Teleservices Ltd., Combination Registration No. C-2017/10/531.

[10] Vodafone India Ltd. v. Competition Commission of India, 2017 SCC OnLine Bom 8524.

[11] Sections 21 and 21-A of the Competition Act.