Opinion: BSNL’s free call offer may not go down too well with CCI

If there was a time when India decisively moved from one set of aspirations to another, it was when mobile phones outmoded landlines and drew them to the verge of extinction. In the given circumstances, it was only fair for BSNL to try and revive the market for landlines. BSNL has announced a plan that offers free calling from its landlines during night hours to any operator in India (including mobile phones). The move comes at a time when the company’s mobile market share stands at a single digit (8%) and its landline business is shrivelling as more users opt for the convenience of mobile phones.

Last year, BSNL lost 12.4 lakh and 1.62 lakh customers in the mobile and fixed-line segments, respectively. But, with the latest offer, the question is: Has BSNL overlooked its antitrust responsibilities as a dominant player in the fixed-line telephone market, by the way of an aggressive plan that, on the one hand, aims at resurrecting landlines in Indian homes, and on the other, threatens the business of other players in the landline/broadband market?

The fixed-line telephone market in India is dominated by BSNL, with a market share of over 60%, followed by Airtel with 12%. BSNL’s market share is more than five times as big as its nearest competitor’s. Airtel, Tata, Reliance, Quadrant, Vodafone and Sistema together account for only 20% of the fixed-line market. Landline connections of private players are mainly meant for providing wired broadband connections.

Further, BSNL also dominates the wired broadband market with over 65% market share. It is also bundling broadband with fixed lines in order to push its landline service and increase tele-density. This gives BSNL a unique position in fixed-line and the wired broadband market which enables it to lay down the rules of the game in its favour and harness behaviour of conducting itself in unfair ways, detrimental to its competitors and new entrants.

BSNL’s free call offer may not go down too well with the India competition regulator, Competition Commission of India (CCI), which could consider such practice as ‘unfair/ predatory pricing’. In 2011, the CCI penalised National Stock Exchange (NSE) with a fine of R550 million for abusing its dominant position as it decided to not charge any transaction fee for its trading services in the currency derivative segment. The intention of predatory pricing tactics of NSE was aimed at ousting MCX from the market. Similarly, the European Commission, in 2003, fined Wanadoo, a subsidiary of telecom giant, France Télécom, 10.35 million euros for predatory pricing in ADSL-based Internet access services, with the intention of foreclosing competitors from the market of high-speed internet access.

Predatory pricing is a form of unfair pricing and means ‘the pricing which is essentially below the average variable costs and has intent of destroying the competition in the market’. Dominant firms deliberately reduce prices to a loss-making level when faced with the competition from an existing competitor or a new entrant, the existing competitors having been disciplined, or the new entrant having been foreclosed, the dominant firm then raises its price again, thereby causing the consumer harm. The competition law in India prohibits certain conducts by a dominant firm which result in foreclosure of competition and harms consumers.

Section 4 of the Competition Act, 2002, specifically prohibits unfair pricing (including predatory pricing) by a dominant firm. Further, bundling or tying practices (landline/ broadband combo) by a dominant firm has attracted the attention of competition authorities. State-owned enterprises (SOEs) like BSNL account for a significant portion of economic activity. They represent a substantial part of GDP, employment and market capitalisation in India. What is more, they often operate in key sectors, such as coal, railways, power, on which large portions of the private sector depends for their operations and downstream competitiveness.

Today, most SOEs in India are still oblivious about the competition law and its compliance. This assumption emanates from the fact that the CCI has heavily fined Coal India and India Trade Promotion Organisation for market abuse. Further, Indian Railways, Delhi Development Authority, Institute of Chartered Accountants of India, Maharashtra State Electricity Board and Rural Electrification Corporation are currently under investigation for market abuse.

Under the competition law, a dominant firm has a special responsibility not to allow its conduct to impair undistorted competition in the market. The Competition Appellate Tribunal, in the NSE/MCX case, highlighted that a company like NSE is expected to be aware of its dominant position and thereby of its conduct on the market. This gives rise to the important issue of the ‘duties of board of director’ of SOEs. They should have the necessary authority, competencies and objectivity to carry out their function of strategic guidance and be able to identify and evaluate their decision making which may lead to anti-competitive foreclosure of market. Good governance of SOEs is essential to ensure their contribution to economic efficiency and growth. It is also vital to maintain competitive neutrality (a “level playing field”) between SOEs and private businesses when they compete in the marketplace.