Rajat Asthana, Anubhuti Hiwase, Charan Preet Singh, Oli Ezhilan, Padmaja Sataluri, Thejas N and Vidyabharathi

This is the second article in a two part series covering the development of the telecom sector and challenges associated with it, competitive concerns therein, and ways to strengthen domestic capability. You can access the first part here.

Increasing reliance on telecom indicates the crucial role it plays in the economy and beyond

Indian Telecom Companies & Competition Law

Picking up from the conclusion of the first part, one of the major challenges faced by the system is the unclear and often conflicting nature of the interface between the cross sectoral regulator Competition Commission of India (CCI) and sectoral regulators like TRAI (Bhaskar 2018). The disharmony between the two is quite evident in the telecom sector in recent years.

With Jio’s entry into the telecom market, the foremost allegation of existing players has been use of predatory pricing by Jio to penetrate the market. Another accusation pertains to the misuse of its dominant position. The combination of the two has been flagged to exert anti-competitive effects. It should also be noted that in this case, the regulatory stance of the commission too has been inconsistent with similar precedents.

As a billion-dollar multi-sector conglomerate, Bharti Airtel initiated proceedings against Reliance Industries and Reliance Jio under the Competition Act, 2002.

The CCI in 2017¹ ruled in favour of Reliance Jio and did not find it to have engaged in the alleged either of the anti-competitive practices. The CCI opined that Jio was not using a ‘dominant market position’ based on the existing wireless market subscriber shares: Airtel’s share being almost 4 times of Jio’s (at that time). This gave clear advantage to Jio as even when not enjoying dominant position in the wireless market, Reliance Industries Limited still had wide access to funds from dominant positions in other industries such as petroleum, yarn/polymer production, and other manufacturing and production industries.

Additionally, the Commission  stated that the informant did not produce any prima facie evidence for most of its complaints and hence dismissed the plea. Interestingly, in May 2017, the CCI had already started an investigation into Airtel, Idea, Vodafone India Ltd and even Cellular Operators Association of India (the industry lobbying body) for committing anti-competitive practices intending  to bar Jio’s entry into the market! 

In February 2018, TRAI amended the Telecommunication Tariff Order with regard to the definition of significant market power (SMP). Through this amendment TRAI did away with traffic volume as a parameter for establishing market power, which gave absolute immunity to Jio as it was experiencing huge growth in terms of traffic volume. However, market rivals challenged this amendment and it was nullified by TDSAT – the telecom sector appellate tribunal – in December 2018. TDSAT² observed that TRAI’s changes offered ‘artificial protection’ to the entrant and as a countermeasure allowed the rivals to offer cheap rates to compete with the low tariffs of Jio.

However, as Jio had already achieved a market share of nearly 40% within the span of these 10 months, the TDSAT order was of little consequence according to industry experts³

Additionally, the Jio case pitted the TRAI and CCI in a turf war over the question of competency. According to CCI, any dispute pertaining to anti-competitive practice or abuse of a dominant position in the market fell within its “exclusive domain,” the antitrust regulator said in its petition to the Supreme Court,⁴ “regardless of the existence of a sectoral regulator.”

In this regard, the SC gave primacy to the jurisdiction of the sectoral regulator. According to the Court, CCI’s jurisdiction begins only after the procedures under TRAI Act have reached finality. Such disputes between cross-sectoral and sector specific regulators are thus complicated more by the appellate authorities in these sectors under their respective acts.

Consumer Trends & The ‘SAT’ Model

The past 5 years have seen a rapid expansion in smartphone access to the masses. Perhaps the main feature that made these phones ‘smart’ compared to their predecessors was that of internet access. We are now talking of MBs and not KBs, and it an be inferred that the use of smartphones started to become heavily dependent upon mobile applications or ‘apps’. Praveen Gopal Krishnan, Sharath Ravishankar and Anushka Chhikara illustrate this concept very creatively:-

The disruption brought in by Reliance Jio has significantly altered the revenue structure of telecom players. Figure 3 highlights the increasing contribution of data services to the revenues of telecom operators.

A large part of the increase in data consumption services has been through the explosion of Over-The-Top Applications (OTT Apps) providing digital communication services (WhatsApp, WeChat), on-demand high quality content (Netflix, Amazon Prime), payment wallets (Paytm, PhonePe)  and the explosion of aggregator services in various sectors (cab sharing, pharmacy).

OTT Regulation

TRAI (2015) defined an OTT service provider as one that offers information and communication technology services without the support of the network operator. They are called OTT because they use the internet which goes “over-the-top” of the telecom service providers. As evident from Figure 3, the traditional revenue sources (messaging and voice calls) have been showing a persistent decline. While the increasing consumption of OTT services means greater data consumption, the devil lies in the detail. What the smartphone was for devices, is what Jio was for the Indian mobile internet industry.

Post-Jio, data prices have crashed from Rs. 180/GB to Rs. 10.52/GB in December 2018. During the same period, data consumption exploded from 239 MB to 8.74 GB per subscriber per month (Kathuria et al 2020). Further, telecom companies have also been hit as the OTT services have developed into a substitute by luring customers by providing access to multiple app-driven services which were earlier provided by Telecom Service Providers (TSPs).

TRAI (2018) in its consultation paper illuminates the regulatory challenges associated with OTT services. Their ability to bypass territorial regulations expands their markets beyond the brick and mortar model. Our increased digital footprint on account of these services has raised concerns on the data protection front. In this domain, the right to privacy clashes with ‘lawful intercept’ which approves surveillance over the telecom network and requires the TSPs to provide access to the networks to law enforcement agencies (TRAI 2015). Currently, no legal obligations are imposed upon OTT players in this regard.

To ensure such compliance, it is mandatory to set up an OTT regulatory framework which determines the jurisdiction of the OTT services either as communication service providers (CSP) or application service providers (ASPs). If the OTT services are classified as CSPs, all the licensing and regulatory requirements would be taken care of as they would fall under the jurisdiction of TRAI (TRAI 2018). While ensuring regulation over OTT players, the TSPs should also be subjected to regulation to prevent unlawful limits imposed on OTT players by the TSPs.

If data is the new oil, then cyberspace is the new battlefield

The SAT Model

Vivekanand Subharaman and Deep Shah (2020: 19-20) elaborate on ‘the SAT Model’ as the chosen response of traditional telecom players to disruptions. These firms are now trying to become critical nodes in the digital highways, by occupying more layers in the consumer stack (see Figure 2). The SAT Model or Subscription, Advertising and Transaction (SAT), can be described as follows: –

1. Subscription: As OTT services require the telecom backbone, we are likely to see an increasing trend of deals between TSPs and OTT services and offering bundled packages to users. Recent examples of such deals include Vodafone-Netflix, Airtel-Amazon Prime, Jio-Zee5. Hence, when users subscribe to these OTT service specific packages, they would receive a share of the revenues.
   
2. Advertising: Riding the digital wave, the advertising industry is likely to intensify its consumer targeting through telecalling, bundled advertisement offers, as well as more conventional advertising related to ever-growing mobile applications  and workplaces (messages of new shops opening nearby).
   
3. Transaction: This can be imagined in two ways. One way would be through direct digital content provision. Examples of this include AirtelTV, or JioTV, where traditional TSPs have created content streaming platforms. The initial marketing strategy involves giving ‘free’ access to these platforms along with a traditional prepaid or postpaid mobile recharge. Another indirect way of imagining this would be through Big Data analysis of the data stream being consumed by users, and monetising these insights to digital advertising companies, e-commerce firms. The model holds immense potential but must be reconciled with concerns of data privacy, .

Telecommunication, holding the critical position that it does, emerges as a key strategic target for potentially hostile adversaries. If data is the new oil, then cyberspace is the new battlefield. While the cyberspace domain may indeed be virtual, it has a far-reaching impact on our defence, energy, financial and increasingly, our health architectures.

Given the increased distrust in Huawei, the loss of Chinese reputation due to COVID-19, the ‘in letter’ inclusion of India in a new 5G club of 10 democracies (D-10)¹⁰ and the cabinet nod for the merger of BSNL and MTNL – India’s digital possibilities are endless

Atma Nirbhar Bharat – Achieving Digital Sovereignty

The Joint Military Doctrine of the Indian Armed Forces (2017) recognises the need to build up capacity to fight Network Centric Wars (NCW). This can only be achieved through the construction of robust and resilient communication networks in all segments – terrestrial, aerial, sub-marine, and space.

Space network capabilities are almost entirely dependent on satellite communication, while other networks comprise of wired and wireless transmission media. Owing to its high data transmission capacity, environmental resilience, and long life, optical fibre cables (OFC) are now strategic digital highways. Recent examples of submarine OFC cuts have shown us the scale of disruption in the affected areas.^6,7 

Recognising the need of the hour, Government of India launched an initiative called ‘Network for Defence Services.’ The project aims to lay 60,000 km of OFC, for the exclusive use of the defence services. In December 2019, around 94% of the OFC cables had been laid. (PRS Legislative Research 2020: 4)

Just how serious the matter is, can be gauged from the standoff between China and US regarding Huawei’s near monopolistic and unassailable hold in the telecom equipment market. India has to grasp from these international contests towards dominance in the telecom sector.⁸ Typical of Chinese strategic thought, China has been supporting Huawei to attain dominance in the telecom sector.⁹

COVID-19 too has accelerated technology adoption trends. Our increased reliance on this infrastructure indicates its role in information dissemination, continuity of economic activity, access to learning opportunities and even telemedicine.

In May 2020, one of the key Atmanirbhar package announcements of the Union Finance Minister Nirmala Sitharaman was limiting the numbers of Public Sector Undertakings (PSUs) to a maximum of four in sectors which are notified as strategic.

The need of the hour is for investments in indigenous telecom equipment manufacturing capacities of India’s telecom PSUs. Another key dimension that will have to be addressed is the consumer orientation of these PSUs, given their meagre subscriber shares in the wireless market.

Though Reliance Jio might just be the appropriate answer to Huawei, it is imperative to re-focus on the country’s telecom sector as a matter of system resilience. In a world where we might see more pandemics, one of the major routes to better pandemic management goes through connecting the two India’s that exist today – India and Bharat.

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This article is authored by a group of 7 candidates of Master of Public Policy (MPP ‘21) at the National Law School of India University, Bengaluru. The authors are: Rajat Asthana (Group Lead), Anubhuti Hiwase, Charan Preet Singh, Oli Ezhilan, Padmaja Sataluri, Thejas N and Vidyabharathi.

The group was mentored by Mr. Paranjoy Guha Thakurta, and is grateful for the same. The group can be contacted via Rajat at rajatasthana@nls.ac.in

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Endnotes

^[1] In Re: Bharti Airtel Ltd. v. Reliance Industries & Reliance Jio Industries Ltd. Case no. 03 of 2017

^[2] TDSAT, Telecommunication Appeal No. 2 of 2017 M.A. No. 118 of 2017

^[3] TDSAT quashes Trai’s predatory pricing rule, analysts say it’s too late, December 14, 2018. Can be accessed at .business-standard.com/article/economy-policy/tdsat-quashes-trai-s-predatory-pricing-rule-analysts-say-it-s-too-late-118121301115_1.html

^[4] Competition Commission Of India vs Bharti Airtel Ltd. Civil Appeal No(S). 11843 OF 2018

^[5] Jio is in the endgame now, July, 2020. Can be accessed at https://the-ken.com/the-nutgraf/jio-is-in-the-endgame-now/#:~:text=%C3%97-,Jio%20is%20in%20the%20endgame%20now,way%20you%27ll%20never%20forget.

^[6] The global internet is powered by vast undersea cables. But they’re vulnerable, July 26, 2019. Can be accessed at https://edition.cnn.com/2019/07/25/asia/internet-undersea-cables-intl-hnk/index.html

^[7] Submarine Cable Repairs Underway in South Africa, 03 Feb 2020. Can be accessed at https://spectrum.ieee.org/tech-talk/telecom/internet/undersea-cable-repairs-south-africa

^[8] U.S. Delivers another Blow to Huawei with New Tech Restrictions, July 14, 2020. Can be accessed at  https://www.nytimes.com/2020/05/15/business/economy/commerce-department-huawei.html

^[9] Chinese tech giant Huawei wins support in Africa, 11 June 2019. Can be accessed at https://www.theafricareport.com/13764/chinese-tech-giant-huawei-wins-support-in-africa/

^[10] UK plans new 5G club of 10 democracies, including India, 29 May 2020. Can be accessed at https://www.livemint.com/news/india/uk-plans-new-5g-club-of-10-democracies-including-india-report-11590759252503.html

References

Bhaskar, V. (2018):” Challenges Faced by Independent Regulatory Agencies in India”. Indian Journal of Public Administration, 64(3), 404–426

Kathuria, Rajat, Mansi Kedia, and Richa Sekhani. 2020. “A Study of The Financial Health of The Telecom Sector”. Working Paper 380. INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS. http://icrier.org/pdf/Working_Paper_380.pdf.

Ministry of Defence. 2017. “Joint Doctrine of The Indian Armed Forces”. New Delhi. https://bharatshakti.in/wp-content/uploads/2015/09/Joint_Doctrine_Indian_Armed_Forces.pdf. PRS Legislative Research. 2020. “Demand for Grants 2020-21 Analysis (Telecommunications).” Budget Analysis. https://www.prsindia.org/sites/default/files/budget_files/DFG%20Analysis%202020-21%20-Telecom.pdf.

TRAI. 2015. “Consultation Paper on Regulatory Framework for Over-The-Top (OTT) Services”. Consultation Paper No: 2/2015. https://trai.gov.in/sites/default/files/OTT-CP-27032015.pdf.

TRAI. 2018. “Consultation Paper on Regulatory Framework for Over-The-Top (OTT) Communication Services https://www.trai.gov.in/sites/default/files/CPOTT12112018.pdf

Vivekanand Subharaman, Deep Shah. 2020. A Networked Future. Ambit Capital Pvt Ltd.