Competition Among Telcos - Need for Data Protection Umbrella
Published: Feb 04, 2021
By Shweta Jain
THE Competition Commission of India (CCI/Commission) launched a Market Study in respect of the Telecom Sector in India in January 2020. The aim of the study was to assess the level of competition in the telecom sector and examine the adequacy of regulations and the need for policy development. For study purposes, data was collected from published reports and other online resources. Different stakeholders like operators, equipment manufacturers, sector experts and many others were interacted with and were involved in the study. An online survey took place wherein questions about the choice of operator and technology, substitutability between access points and operators were asked. Based on data collected from all sources, a report was made.
Scenario of Telecom Sector
India's telecom sector is fastest-growing network and also a backbone of India's digital economy. During the country-wide lockdown in 2020 due to COVID-19, this sector's contribution to India's GDP is estimated to have increased by 5 to 6 times. There has been a drastic change noticed in telecom sector in the past few years. Where the number of operators were 15 in the year 1999 the same is 8 in 2019. Net profit margin has reduced from approximately 11% to 0.5% for operators during this period. We have witnessed many mergers. Aircel and Sterling Group merger took place in the year 2005. Spice and TeleKom merger took place in the year 2006. Vodafone merged with Idea in 2018 and many more. Primary services which were offered in 1999 were SMS and Voice with the help of 2G technology. At present services offered are SMS, Calls, Internet, OTT, (Tripleplay/Quadplay bundles) with the help of 4G technology. Consumer preferences have changed and data-rich content has replaced the voice dominated telecom market. Smartphones have become multi-utility devices.
At present, in India, mobile connections had crossed a billion and aggregate data traffic on the three major private networks was estimated at 250 petabytes per day as of December 2019. It was noted that nationwide lockdown due to COVID 19 increased daily data traffic to nearly 360-380 petabytes.
It has been found that Jio, Airtel and Vodafone-Idea are major private sector operators. They collectively own 88.4 per cent of the market. Reliance Jio has the highest market share with respect to subscribers (33.3 percent) as of April, 2020. Globally, India offers the cheapest data compared at current market exchange rates. The tariffs in India are lower than several countries like Brazil, Russia, China, Canada and the US.
When Jio entered the Indian telecom market, it offered all 4G services at very low tariffs. Others had no option but catch up with same. At present Vodafone-Idea accounts for the highest share of rural subscribers; Reliance Jio is inching closer, with its bundled low-cost 4G Jio feature phone. It has been observed that mix of technologies 2G, 3G and 4G is likely to stick around for at least a few more years, impacting the competitive strength of incumbent operators.
Competitiveness in Indian Telecom Sector
In the telecom sector, entry is open and tariffs are subject to forbearance. Spectrum has been delinked from the license and is available in the secondary market. The unbundling of the spectrum from the license was done in 2012. Spectrum sharing and trading was permitted in 2015. Interconnection tariffs, net neutrality rules and mobile number portability (MNP) are some of the explicit ex-ante regulations that shape competition in the telecom sector. The Report suggests that only an entity with Significant Market Power can engage in anti-competitive conduct in the telecom sector.
The price competition among players would depend on several elements such as nature of the market rivalry and expected response from a rival following a competitive move. As the market matures and tariffs become similar across operators, non-price parameters would begin to play an important role in driving competition.
The report admits that non-price factors play important role in driving competition in the Indian telecom market and factors such as data speeds and bundled offerings influence consumer choice. The partnerships between telcos and OTT(Over the Top) companies takes place but there is no reported abuse of market power. In fact, it leads to win-win situation for both consumers as well as service providers.
Development in the field of technology has inspired vertical integration in the industry and inspired partnerships between telecom operators and digital solutions providers such as content providers, e-commerce platforms, digital payment platforms and other cloud-based technology solutions. Now mobile, internet/broadband and television are bundled to provide to consumers a ‘quad play'. This bundling reduces consumer search costs and thereby enhances welfare. Experts in India do not yet perceive the vertical integration as a threat to competition. However, cross-country examples suggest a need for detailed scrutiny on this topic.
Internet companies utilize Content Delivery Networks (CDNs) to facilitate faster delivery of content to users. CDNs have agreements with Internet Service Providers (ISPs) or Telecom Service Providers (TSPs) to host servers on their network. Since data traffic is growing and limited number of players are controlling a significant proportion of internet traffic, there is a potential for anti-competitive agreements between CDNs, ISPs/TSPs and internet companies.
The telecom regulator had recommended setting up of Public Data Offices (PDOs) to provide public Wi-Fi services. It is believed that setting up of public Wi-Fi hotspots reduces import duty on Wi-Fi equipment. The cost of providing internet through Wi-Fi can be reduced to 2 paise per MB opposed to 23 paise per MB using mobile networks. In addition to reducing capital and revenue expenditure, it would also lower barriers in entering the market and increase healthy competition.
1. Tariffs have been the center point of competition in Indian telecom market. Intense price wars have been witnessed in the past. All stakeholders agree that remaining the cheapest telecom market in the world is not a good option. Hence, operators have increased tariffs by almost 40% from the unsustainable levels of 2017-18 and 2018-19.
2. Data loaded bundled offerings has become the industry norm. As per TRAI regulations, TSPs are forbidden from discriminating on the basis of content, sender or receiver or user equipment based on prior arrangements. Telecom operators are nowadays investing in digital content companies, digital payment platforms and social media firms. People currently view these partnerships as a good deal for operators, companies as well as consumers. But from a competition standpoint, CCI has to be vigilant that such vertically integrated infrastructure providers do not indulge in actions that could or have the potential to foreclose entry in the application layer.
3. As per existing practice, public peering in India is permitted by the National Internet Exchange of India (NIXI) at a fixed charge. While private peering is based on bilateral negotiations and terms are confidential, it has been found that companies discriminate between internet traffic depending on peering arrangement with a company. So experts have suggested that these peering arrangements should be made more transparent without compromising forbearance in commercial terms and conditions.
6. Experts suggested that infrastructure, network, service and application layers can be completely segregated to induce competition within the telecom market. This would increase competition within each layer.
7. The Department of Telecommunication applies auction-based method for spectrum allocation. No doubt, spectrum ownership creates a competitive advantage for operators. The average spectrum holding for an Indian operator is lower (31 MHz) than the global average of 50 MHz. The poor financial health will impact the operators' ability to acquire new spectrum and the subsequent launch of 5G in India.
8. Market experts opinionated that competition assessment of merged/integrated entities in multi-sided markets must consider the ‘combined data power' of the new entity in establishing dominance. The CCI is required to examine whether the collection of ‘excessive' amount of data can be anti-competitive on a case to case basis.
9. In digital communications market, there is conflict between allowing access and protecting consumer privacy. This Privacy can take the form of non-price competition. Abuse of dominance can be in the form of lowering the privacy protection and, therefore, fall within the ambit of anti-trust. Apart from competition issue, privacy is also fundamentally a consumer protection issue.
Japan has guidelines which state that any use of personal information, including users' purchase history and location, without their consent would constitute an "abuse of a superior bargaining position," a violation specified under Japan's Anti-Monopoly Act. India is still to work on this aspect and on a domestic Data Protection Law. With the help of robust law structure, India can lay the foundations for a strong and competitive telecommunications sector. It is very important that DoT, TRAI, CCI and the envisaged Data Protection Authority keep their communication intact to ensure that regulatory decisions are robust and effective. Overlapping jurisdiction between institutions cannot be completely denied and eliminated, but it can be harmonized through better communication.