Telcos face fine up to Rs 5 mn per circle if service rates are predatory

Trai chairman R S Sharma
Defining the concept of non-discrimination and non-predation, the Telecom Regulatory Authority of India (Trai) on Friday said it would impose a penalty to the tune of Rs 5 million per circle on any telecom operator found to be involved in offering predatory tariffs.

Trai’s new rules suggest a tariff can be considered predatory if a significant market player (SMP) offers services at a price which is below the average variable cost in a “relevant market” with a view to reducing competition or eliminate competitors. SMP is a service provider holding a share of at least 30 per cent in a relevant market, which should be defined based on any of the two parameters — subscriber base and gross revenue. 

It would mean incumbent operators like Bharti Airtel, Vodafone, and Idea Cellular cannot offer tariffs below their average variable cost as they are SMPs in many markets, Trai sources said. Reliance Jio is yet to become an SMP and therefore would not be affected by the new norms.

Trai’s rules on “transparent pricing’’ follow incumbent operators’ complaint to the regulator against Reliance Jio for offering “predatory tariffs’’. Telcos such as Bharti Airtel, Idea Cellular, and Vodafone have maintained that Jio’s tariffs are below cost and not compliant with the principles of interconnect usage charges (IUC). After the initial free offers, Jio went commercial on September 5, 2016. But, as part of a promotion under the Welcome offer, the firm gave free calls and data for another three months before extending again and renaming the plan as Happy New Year Offer.

The new rules are being interpreted as a setback for the incumbents. Trai has clarified in these rules that IUC cannot be taken as floor for the retail tariff. It has decided to remove the requirement of IUC compliance from the reporting requirement. 

Trai has said prices are considered predatory when a significant market player sets prices so low that it can be considered rational only if it reduces competition, eliminates competitors or deters entry of new market players. Predatory pricing by a significant market player involves deliberate sacrifice of profit in order to force competitors to exit the market, the regulator said. Non-predation means not indulging in predatory pricing by a service provider having SMP, it added.

Estimates show Airtel is a significant market player in 15 circles, Vodafone in four and Idea in three. However, after the merger, Idea-Vodafone will be a significant market player in about 16 to 18 circles. Jio also has gained around 18 per cent share in circles like Punjab and in the coming years may become a significant player at least in a few circles. Idea Cellular had sought the threshold for SMP to be fixed at 50 per cent or more.

There are 22 telecom circles in the country. Airtel, Vodafone, Idea Cellular and Reliance Jio have operations in all the circles whereas state-run telecom firm BSNL operates in 20 circles and MTNL in two. Aircel also operates in select circles.

Taking a tough stand against predatory pricing, Trai said it may examine tariffs of an SMP on reference from any person or suo motu, to determine the existence of predatory pricing. The Authority may disallow the relevant tariffs if they are found to be predatory.

“In case of tariff being found predatory, the service provider shall, without prejudice to the terms and conditions of its licence...or directions issued, thereunder, be liable to pay by way of financial disincentive an amount not exceeding Rs 5 million per tariff plan for each service area as the Authority may by order direct,” Trai said.

The regulator will determine relevant market based on relevant product against which it receives a complaint. It will arrive at “variable cost” after deducting fixed cost and share of fixed overheads borne by the company from total cost of incurred by it for running business during the period under review.

The regulator also said that telecom operators will have to provide services to all subscribers availing the same tariff plan in a non-discriminatory manner.

It is the obligation of a service provider to report to the Authority any new tariff within seven working days from the date of its implementation after conducting a self-check to ensure that the tariff is consistent with the regulatory principles.

Telecommunications Tariff Order

  • Operators need to report any new tariff to Trai within seven days
  • No telco should discriminate between subscribers of the same class 
  • Promotional offer period is restricted to 90 days but benefits can be for an indefinite period 
  • IUC compliance removed from reporting requirement
  • Operators can offer 25 tariff plans in a service area

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