Reliance Jio vs Airtel: Market Domination Will Hurt Customers

Monopolising the market, as Reliance Jio seeks to do, will short-change consumers with low quality and high prices.

Monopolisation of markets is bad for customers in the long-run and is a setback for the economy. (Photo: The Quint)

When the Competition Commission of India (CCI) was established in October 2003, it was entrusted with the responsibility of ensuring that barriers to price and quality competition are not created through, among others, monopolistic practices.

There is a clear rationale for this: when firms, old and new, compete in terms of quality and price, the consumer is the gainer as she gets high-quality products at reasonable prices.

Monopolisation is Against the Consumer

Many practices can, however, be followed to negate such competition: examples are the infamous practice of granting licenses to a very limited number of firms in each industry (we are familiar with the poor evolution of the telecom sector when the government was the sole provider).

Another such practice is that of ‘predatory pricing’. A firm with financial heft can price its product below a certain cost to drive all potential competitors out of the market. This is often associated with the mission of charging high prices once the markets are monopolised.

The Competition Commission is, in short, expected to be the guardian of competition in the business sector. If it is a lax guardian, monopolistic practices will thrive.

Though we might see a surge in quality and drop in price with the intention of monopolising the market in the short run, the Indian consumer will be short-changed in the long run both through low quality and high prices.

This has negative implications not only for consumer welfare, but also for economic growth and poverty alleviation.

Consumption of products essential for people might decline in the long run with such scarcity being pronounced in case of cash-starved poor.

(Infographic: Rahul Gupta/ The Quint)

Tied Selling

There are even more subtle monopolistic practices in existence. One such practice is tied sales.

Tying occurs when customers buy a product they want (the tying product) but are required (forced) to buy a product (the tied product) from a different market that they may not want.

Introduction to Competition Law, CCI

It must be acknowledged here that identification of products as belonging to the same or different markets involves discretion which can be misused by the governing authority.

But it is clear that tied sales might breed monopolies. For example, Reliance Jio has recently launched a scheme in which the routers manufactured by rival companies (Airtel) have to be given up for routers manufactured by Jio, in order to avail discounted access to the internet, again provided by Jio.

In this case buying the router through exchange (which reduces the buying price of the router) is tied to discounted purchase of internet services.

Also Read: Telecom Tribunal Asks TRAI To Re-examine Free Reliance Jio Offers

Case of Reliance Jio vs Airtel

Two points need to be made here:

1) First, internet access and routers are different products; it is surely possible to manufacture routers which can host internet services provided by other companies.

For example, I can access Vodafone’s internet service through a router manufactured by Beetel.

2) Second, even if the authority pardons the first practice, how can it ignore the instance in which giving up a non-Jio router becomes a precondition for discounted access to Jio’s own internet service?

One can surely see what will happen in the not too distant future: non-Jio routers will disappear from the homes of consumers and other companies would not be effectively able to engage Jio in price and quality competition. Thus, the country might return to the era of diminishing welfare and monopolies that inhibit growth.

Also Read: The Reliance Jio Effect: Telecom Industry Revenue Falls

(Infographic: Rahul Gupta/ The Quint)

Competition Commission Should Take a Cue from TRAI

The CCI should take a leaf out of TRAI’s book. TRAI (Telecom Regulatory Authority of India) recommended the central government that it should ensure that companies make set top boxes in the DTH (Direct to Home) broadcast segment.

The move ensured interoperability (ability of customers to use an existing set top box (STB) to gain access to a different operator) by getting the Bureau of Indian Standards (BIS) to specify appropriate technological parameters for such STBs. It is another matter that as of December 2016, BIS has not specified those parameters.

Urban residents are aware of the importance of a fool-proof security system. The same role is performed by the CCI with respect to the economy: it should keep an eye on attempts to monopolise markets which ultimately result in the depletion of hard-earned incomes of the aam aadmi.

Also Read: Reliance Jio May Be Losing Steam as Free Services End

(The author is a Professor and Coordinator at the Department of Economics, Centre for Advanced Studies, Jadavpur University. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)